Risk takinng, gut feelings, and the biology of boom and bust

The author is a former bank trader, now a physiology researcher. He considers the impact of physiology on the performance of traders. He applies the "winner's effect" of successful harem breeders such as walrus and seals, to the activities of traders - when on a successful roll they get high doses of testosterone, feel invincible, and end up taking unreasonable risks, which results in erratic ups and downs in their performance. He also examines the corollary, where a traders undergoes prolonged stress during a downturn, and how the impact of stress on the body leads to excessive risk aversion. Amazing stuff. Clearly the application of these insights goes far beyond bank traders, but that field is the author's background and it makes for a highly topical book.
Read December 2014 ( )

This is an outstanding book: well-written, informative and deeply engaging. It provides a summary of the latest research into the physiological effects of stress and risk-taking, with particular reference to financial markets. The picture it paints is absolutely compelling, and should be read by anyone who works with (or near) bank traders of any kind - the managers of those traders should be particularly interested! ( )

In this Wellcome Trust shortlisted book, Coates describes his research into the feedback loop between testosterone and success in the financial market. When a person has high levels of testosterone, they are prone to risk taking - which generally promotes the market; however, success raises their testosterone levels, which increases their risks and creates bubbles (like the dot-com bubble) which are unnatural and eventually pop. Loss of money leads to decreased testosterone levels and release of stress hormones - which, if sustained for long periods of time can lead to a depressed, risk-averse market. This is when the government should step in and perk up the market themselves. (You can probably guess Coates' politics from that statement, but the book is generally apolitical.)

I found Coates' research quite fascinating, and his writing was engaging to someone who's interested in the topic. I, unfortunately, am not generally interested in finance and so my attention wavered a bit during the finance-heavy bits. But the book was written in an approachable way such that I (who know nothing of the matter) could understand the financial/market bits and that someone who knows very little medicine could understand the science bits. In fact, it was shortlisted for the Wellcome Trust Book Prize because because it makes medicine approachable to the general population. For anyone interested in how hormones/neuroscience/psychology can affect the market, this would be an excellent book to pick up. An easy and interesting read. ( )