Forget the subprime mortgages crisis, every market disaster can be blamed on bad chemicals.
Bad man-chemicals to be specific. New research from the University of Cambridge shows that the economy is ravaged by the whim of the testosterone flowing through traders’ veins.
“The popular view is that experienced traders can control their emotions,” on of the lead researchers, John Coates says, “but in fact their endocrine systems are on fire.”
The scientists discovered that as traders made more money, their testosterone levels rose. So, lots of testosterone equals making lots of money, and it’s good for the economy, right?
Uh, unfortunately, as the honcho-hormones run rampant, this leads to overly aggressive (and bad) decisions. Thence the crash, and this causes elevated levels of cortisol, which causes “shrinkage of the prefrontal cortex and hippocampus, brain regions associated with decision making and factual memory,” the researchers say.
So this is the process:
a) testosterone leads to making money
b) making money generates more testosterone
c) too much testosterone causes bad decision making
d) this causes a crash, and then the brain shrinks, leading to
f) learned helplessness, fear, loathing, rivers of fire and a meltdown of the markets.
So I guess it’s time to let women on the trading floor, eh?
More on this story at the New Scientist. Some of this group are suspected of irrational exuberance.