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Science and Medicine: Can Hormones Impact Wall Street?

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Rob Stein
Washington Post Staff Writer
Monday, April 21, 2008; 11:00 AM

Washington Post staff writer Rob Stein and John Coates, from the University of Cambridge in England, was online Monday, April 21 at 11 a.m. ET to discuss a study by Coates that examined the impact of hormone levels of Wall Street traders and how those results may affect the economy.

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In today's Science Page story, Rob Stein writes: "By measuring young male traders' hormone levels as they brokered high-stakes deals, the researchers showed that they tended to make more money on days when their testosterone levels were high. That suggests that the hormone makes them more likely to take profitable risks, but also that it may play a role in pumping up economic bubbles."

The transcript follows.

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Rob Stein: Rob Stein: Good morning everyone. Thanks so much for joining us today to discuss this fascinating new research on the relationship between hormones and the behavior of traders. Before we begin I'd like to thank our guest, John Coates of the University of Cambridge, for taking time to participate in this discussion about his research.

Just to get things started, I was hoping Doctor Coates would help put his research into some context. Can you tell us a little bit about what was previously known about how tesosterone affects behavior?

John Coates: The study of testosterone largely began in the 1930s when androsterone was first distilled, unbelievably, from 20,000 liters of policemen's urine. Endocrinology entered the public consciousness and it is amusing to note that shortly thereafter Noel Coward in his play Design for Living had a character say of behaviour, It's all glandular now.

Research since then on testosterone and behaviour, in both animals and humans, tended to concentrate on the steroid's effects on aggression. But it was never clear if testosterone was causing the aggression, or aggression causing the testosterone to increase. There has also been a great deal of research on the anabolic effects of androgens, specifically on athletes.

Our research has tried to understand the specific ways that testosterone affects humans as opposed to animals. As you ascend the phylogenetic scale the effects of testosterone on behaviour probably weaken. It is possible that testosterone affects the brains of humans in very subtle ways. In these traders, for example, it may be shifting the confidence they have in their assessments of probabilities. That is very subtle. I'm not sure you could observe these changes by looking at the traders, yet it could impact their trading performance.

Incidentally, I think that may explain why these traders weren't the macho types you might expect. They were quiet, tight-lipped, and rarely lost their tempers.

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Munich, Germany: Testosterone causes brokers to be more likely to take profitable risks, but if they make more money during these high testosterone days, does this mean that they're making better decisions? If so, does this indicate that testosterone increases intelligence or intuition?

Rob Stein: The thinking is not that testosterone increases intelligence, but that it might boost confidence, making traders more willing to take risks that pay off.

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Burbank, Calif.: I know in business school one could see the driven egotistical students indeed were the ones who would win up on Wall Street. Of course, a few of them wound up in jail. Is it safe to observe that these people, in college and it seems in life, tended to be more risk takers and more willing to bend ethical edges and perhaps cross them?

John Coates: tough question. there has been some research on testostrone and crime by James Dabbs. We certainly didn't look at that. We were trying to capture the effects of testostrone on risk preferences. we had to be very precise in what we were looking for

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Surakarta, Indonesia: Assalamualaikum, maybe true that steroid hormones that work as the trigger for increasing the emotion of an individual. What the centers within the brain that working as the centers of emotion? The emotion-based behavior of an individual is developed by the conditioning process of Pavlov. There are two types of the conditioning process in Homo sapiens, including (1) phylogenesis (from generation to generation of a community) and (2) ontogenesis (in the all life long of an individual). In the context of phylogenesis, genetic mutation can be conditioned. So, if a behavior had been recorded by a gen of an individual, the behavior will be descended to his or her children. Just for example, gens for the Id-based cannibalism were developed and then repressed, meanwhile, gens for Superego-based altruism are being developed and expressed, in Homo sapiens, in the line of phylogenesis. For another example, the genes for greedy are strong in individuals of capitalist (so they are breathed by the greedy for profit, even if the profit is charged with the ethically evil, including the surplus value or exploitation of the workers or sublimely cannibalism or capitalists are drinking the blood of workers). In the tomorrow of mankind, the genes for greedy will be repressed, as the genes for cannibalism, in Homo sapiens. One question for you, 'Is the blind power of Nature able to drive the line of phylogenesis, so the conditioning process in phylogenesis is directing to the Point of Omega of Chardin?' Matur nuwun (thank you very much). 19.06, April 21, 2008, Monday

John Coates: if I understand your question, I can only say that the effects of androgens on the brain are poorly understood. But it appears that testosterone releases dopamine in the nucleus accumbens, a part of the brain that fires in anticiaption of risky behaviour, and a part of the brain that is implicated in addiction.

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Rob Stein: Here's a question I received earlier today via email. There's several interesting questions here. I was wondering if you might want to take a crack at them Doctor Coates?

Thank you for your fascinating article. It left me with more questions than answers, and an urgency to answer them--so it probably is raising my testosterone level.

Is it possible that the intense trading envorinment attracts men whose levels are higher or more volatile than other men's?

It is notable that the rise of homone levels during a fight or flight reactions seems to parallel the reactions of the traders who were studied.

I wonder how women traders homone levels alter during trading sessions.

Is the post traumatic stress level we are seeing in many soldiers returning from Iraq and Afganistan partly a result of high levels of cortisol? Incressed cortisol does tend to increase anxiety, a sense of danger even when there isn't any, and the replaying of bad memories, all symptoms of PTSD.

And, it's difficult not to wonder if we are seeing the traders' biological responses in the presidential candidates.

John Coates: Good questions. It seems likely that the trading environment attracts a certain type of person. Even more likely that it selects for a type. Nonetheless, the financial world, because of its high rewards, attracts a lot of different types.

And yes, the hormone reactions of the traders corresponded more or less to the winner effect model, which at bottom is a model of confrontation and competition.

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Washington, D.C.: How many women traders are there?

John Coates: Well, on the trading floor where we conducted the study there were 260 traders and only 4 of them were women. In the big investment banks you find a higher percentage, but still not many.

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NYC: Just a comment your readers might value. This American Life has a pod cast on "people getting more testosterone and coming to regret it. And of people losing it and coming to appreciate life without it. The pros and cons of the hormone of desire."

It is very interesting look at this topic.

http://www.thislife.org/Radio_Episode.aspx?episode=220

Rob Stein: Thanks... That sounds quite interesting...

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Rob Stein: Rob Stein: Here's an email I received earlier today. There are several interesting questions here. I was wondering if you might want to take a crack at them Doctor Coates:

Thank you for your fascinating article. It left me with more questions than answers, and an urgency to answer them--so it probably is raising my testosterone level.

Is it possible that the intense trading envorinment attracts men whose levels are higher or more volatile than other men's?

It is notable that the rise of homone levels during a fight or flight reactions seems to parallel the reactions of the traders who were studied.

I wonder how women traders homone levels alter during trading sessions.

Is the post traumatic stress level we are seeing in many soldiers returning from Iraq and Afganistan partly a result of high levels of cortisol? Incressed cortisol does tend to increase anxiety, a sense of danger even when there isn't any, and the replaying of bad memories, all symptoms of PTSD.

And, it's difficult not to wonder if we are seeing the traders' biological responses in the presidential candidates.

John Coates: To return to this set of questions. It would be very informative to know how women's endocrine systems react to trading. It is entirely possible they are not subject to the extreme hormonal swings male traders are. But we dont know.

Cortisol has been studied in PTSD. I unfortunately do not know this literature well.

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Rob Stein: So far we've been focusing on testosterone. But one aspect of your research that I found quite interesting was the finding about cortisol. I was wondering if you might be able to expand a little about what you discovered?

John Coates: Yes, all attention seems to be focused on the testosterone. But cortisol is probably a more important chemical to be looking at in this financial crisis. Cortisol has an extremely broad command in the body. In times of crisis it slows down long term functions of the body, like digestion and reproduction, and it gathers glucose for immediate use. This is very healthy. Traders before big economic numbers had very high cortisol. it was preparing them for action. But if volatility stays high, and cortisol exposure becomes chronic it has a terrible effect on our bodies and brains.

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Rob Stein: Although testosterone is commonly considered a "male" hormone, women do produce it and respond to it as well. Do you think testosterone plays a role in a woman's economic decision-making at all?

John Coates: No idea. There is one study, done in Holland, where they adminstered testostrone to women playing the Iowa gambling Task, a game that measures rational decison making. As the level of testosterone rose in the women they started to make the over risky and ultimately money-losing decisions.

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Rob Stein: Another fascinating aspect of your research is how after a while risk-taking because of testosterone can eventually essentially hit a peak and then backfire. Why is that?

John Coates: Steroids have what is called a dose-response curve that is an inverted U shape. That means that if you plot the level of, say, testosterone against, say, cognitive function you will see an improved performance as levels rise from 0, but at a certain point the steroid begins to exagerate, in a sense, the reaction and it can become impaired. We suspect that testosterone and financial risk-taking has a dose-response curve like this.

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Rob Stein: Several people have asked me whether men with relatively high testosterone levels compared to other men would make "better" traders? I was wondering if you could explain whether your study cast any light on that question?

John Coates: No. There is no correlation between testostrone levels in the traders and their profitablity. It is only changes within an individual that were affecting their profits. You could have a trader with very low levels of testosterone, yet with a very pronounced correlation between rises in his steroid levels and his trading performance. It is a myth that high T males make good traders.

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Rob Stein: When my story was being edited, one of the questions my editor asked me was the chicken-and-egg question. In other words, was the high testosterone driving the increased profitability or visa versa? I wasn't really able explain that. Could you talk a little about what your data says about that?

John Coates: Yes, fortunately we had two time points for our samples, 11am and 4pm. That means we could solve the chicken-and-egg problem. we looked at morning testosterone and afternoon profits, and found that these were correlated. Under these circumstances, the flow of causation can only go one way. That doesn't mean we have established causation yet. But we have taken a good first step.

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Rob Stein: Your study focused on testosterone and cortisol. I've been wondering whether any other hormones may also play a role in economic decision-making?

John Coates: There is not much work on hormones and financial decision-making yet. We hope to change that. Bu there was one article on Oxytocin, a peptide hormone, that showed it affected people's trust in their brokers, only only in an investment game.

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West Chester, Pa.: The article says you have further experiments planned -- can you describe what additional information you hope to get from those studies?

Also, do you have any hypotheses on how hormonal fluctuations might affect women traders?

John Coates: Well, we are working with a very ambitious hypothesis - that naturally produced steroid hormones exagerate the swing in the market. This first experiment could not test a hypothesis that large. But it took a good first step. Now we have to carve that big hypothesis down into smallerand more testable pieces, and that may require lab work.

As for women, my hunch is that their endocrine systems are not as influenced by financial events as are mens.

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Rob Stein: I just got another email from a reader asking if you could talk a little bit about the role that testosterone plays in older men. I know testosterone levels tend to fall with age. But do we know how quickly and at what age it may start to have less of an impact on behavior?

John Coates: Testosterone falls over the course of a man's life. This decline picks up after the age of 50.

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Rob Stein: One of the reasons we are interested in this research is that it suggests that hormones may play a role in promoting economic bubbles, like the dot.com bubble. I've been wondering if this could have played a role in the housing bubble?

John Coates: As much as I'd love to say that the housing bubble was driven by testosterone, in truth I dont think it was. I think this thing was driven more by silly accounting practices and compensation schemes in the financial sector. The Dot.com bubble however I do think was at least exagerated by T.

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Rob Stein: You got interested in this work when you worked on Wall Street yourself. I mentioned this in my story. But I was wondering if you could expand a little on your observations from that time.

John Coates: Well, traders and in fact it seemed, the population of New York seemed to be giddy with excitement during the Dot.com bubble. Economics tells us that investors estimate future returns from existing information; but I didnt notice anyone doing any calculations. They seemed drunk. Women on the other hand seemed, on average, slightly more skeptical. Both facts suggested to me a chemical, and one like testosterone.

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Rob Stein: I was wondering if you could elaborate a little on this idea that high-testosterone makes good traders. That's certainly the stereotype. Can you elaborate a little on why that's a myth?

John Coates: Well, as I was saying earlier, we were looking at changes in testostrone within each trader. We did compare levels between traders but found no relationship between their baseline levels and their profitablity. It was only when each trader experienced a rise in T in the morning that he on average did better for the rest of the day. That is merely a change within each person.

Also, the myth of the Gordon Gekko type dominating wall st, the high testostrone alpha male type, is a myth. Masters of the universe tend to get fired. Who would want a strutting braggard like that managing your capital. No, the good traders, the ones with this high correlation between increases in T and trading performance, looked more like Roger Federer or Tiger Woods. Quite modest.

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Pheremon, AL: Might the few women on the trading floor experience pheromonal effects from all those men? Personal anecdote - I'm a woman and when I'm in the midst of a group of work-pumped men I start feeling energetic and I swear I start thinking faster and more to the point. Introspectively it just feels like something in the air.

John Coates: That's very interesting. I don't know if it's pheromones. It may be. But there is known endocrine contagion. For example, sports fans watching a winning team will experience the same increase in testostrone as the team itself. It raises all sorts of intriguing possiblities.

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Rob Stein: If your hypothesis is confirmed by your future research, what would the implications be? What, for example, could the Fed do to compensate for this effect?

John Coates: Boy that is a tough one. We are just now starting to think about that. But if it is true that steroid are exagerating financial swings then the markets are a very different kind of animal, one that is not as responsive to price signals as economics assumes.

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Phoenix, Ariz.: Have you considered repeating the same study in a bear market to see how relative testosterone - cortisol levels affect trading behavior? I'd be interested to see if the generally pessimistic market outlook of a bear market changes the way that traders behave in relation to their relative hormone levels. I assume that this data was collected sometime in the bull market of the last few years.

John Coates: Yes, I have. In fact, I ws supposed to be on a trading floor now, doing precisely what you suggest. Trouble is when the crisis takes another lurch down thr last thing traders want to be doing is giving bio-markers. In general with this research, the more interesting the market the harder it is to do a study. But that is the nature of field work.

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John Coates: Thanks for the questions. and thank you Rob.

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Rob Stein: Thanks very much for you great questions. And thanks again to Doctor Coates for taking time to join in this great discussion. We'll definitely be looking forward to hearing more about your future research.

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Editor's Note: washingtonpost.com moderators retain editorial control over Discussions and choose the most relevant questions for guests and hosts; guests and hosts can decline to answer questions. washingtonpost.com is not responsible for any content posted by third parties.


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