The Hour between Dog and Wolf: Risk Taking, Gut Feelings, and the Biology of Boom and Bust

The Hour between Dog and Wolf: Risk Taking, Gut Feelings, and the Biology of Boom and Bust

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by John Coates
     
 

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A successful Wall Street trader turned Cambridge neuroscientist reveals the biology of boom and bust and how risk taking transforms our body chemistry, driving us to extremes of euphoria and risky behavior or stress and depression

The laws of financial boom and bust, it turns out, have more than a little to do with male hormones. In a series of

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Overview

A successful Wall Street trader turned Cambridge neuroscientist reveals the biology of boom and bust and how risk taking transforms our body chemistry, driving us to extremes of euphoria and risky behavior or stress and depression

The laws of financial boom and bust, it turns out, have more than a little to do with male hormones. In a series of groundbreaking experiments, Dr. John Coates identified a feedback loop between testosterone and success that dramatically lowers the fear of risk in men, especially younger men—significantly, the fear of risk is not reduced in women. Similarly, intense failure leads to a rise in levels of cortisol, the antitestosterone hormone that lowers the appetite for risk across an entire spectrum of decisions.

Coates had set out to prove what was already a strong intuition from his previous life: Before he became a world-class neuroscientist, Coates ran a derivatives desk in New York. As a successful trader on Wall Street, "the hour between dog and wolf" was the moment traders transformed-they would become revved up, exuberant risk takers, when flying high, or tentative, risk-averse creatures, when cowering from their losses. Coates understood instinctively that these dispositions were driven by body chemistry—and then he proved it.

The Hour Between Dog and Wolf expands on Coates's own research to offer lessons from the entire exploding new field—the biology of risk. He brings his research to life by telling a story of fictional traders who get caught up in a bubble and then a crash. As these traders place their bets and live with the results, Coates looks inside bodies to describe the physiology driving them into irrational exuberance and then pessimism. Risk concentrates the mind—and the body—like nothing else, altering our physiology in ways that have profound and lasting effects. What's more, biology shifts investors' risk preferences across the business cycle and can precipitate great change in the marketplace.

Though Coates's research concentrates on traders, his conclusions shed light on all types of high-pressure decision making-from the sports field to the battlefield. The Hour Between Dog and Wolf leaves us with a powerful recognition: To handle risk in a "highly evolved" way isn't a matter of mind over body; it's a matter of mind and body working together. We all have it in us to be transformed from dog into wolf; the only question is whether we can understand the causes and the consequences.

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Editorial Reviews

Publishers Weekly
Far from the preserve of cold-blooded rationalism, Wall Street is dominated by primitive drives and hormonal surges, argues this scintillating treatise on the neurobiology of the business cycle. Coates, a Cambridge neuroscientist and ex�Wall Street trader whose previous studies have shown that male traders perform better when they have elevated morning testosterone levels, draws an intimate portrait of life on a trading floor, with its intuitive, rapid-fire deal making under pressure, as an almost physical athleticism directed by brain processes and chemistries evolved for less cerebral pursuits. As bond markets soar and slump, he notes, traders experience involuntary fight-or-flight reflexes, jolts of dopamine, and convulsions of the primal “gut brain.” In bull markets, the euphoric boost in testosterone from successful trades fuels ever crazier risk taking until the inevitable collapse, when the defensive steroid cortisol takes over and turns financiers into risk-averse paralytics dependent on government bailout and stimulus. Coates takes economist John Maynard Keynes’s idea of entrepreneurial “animal spirits” and grounds it in hard science, while introducing readers to a brain that’s inseparably intertwined with a very demanding body. The result is a provocative and entertaining take on the irrational exuberance—and anxiety—of the modern economy. Agent: Natasha Fairweather, AP Watt, U.K. (June)
Kirkus Reviews
An in-depth look at how financial risk-taking is linked to human biology, especially to the testosterone levels of young male traders, and the implications of this phenomenon for financial markets and the wider economy. Coates, who has a doctorate in neuroscience from the University of Cambridge and spent years as a trader at Goldman Sachs, Merrill Lynch, and Deutsche Bank, brings an educated, experienced eye to this examination of the biological side of the financial markets. In his view, the waves of irrational exuberance and pessimism that exaggerate bull and bear markets may be driven by physiological changes. The author has monitored the endocrine and autonomic nervous systems of traders in London to learn how physiological systems affect moods and behavior in competitive and risk-taking situations. When young male traders make money, their testosterone levels rise, and this chemical hit turbocharges their confidence and their level of risk-taking. Coates warns that overconfidence and overreaching lead to a bubble followed by a crash, and the stress response to a crash is a rise in another hormone, cortisol, leading to anxiety, fear and pessimism. The author also takes readers inside the brain, citing scientific research that explains how the brain and body work together, how gut feelings affect thinking, and how we might become physiologically more resilient to stress. Finally, the author suggests steps that banks and fund managers might take to manage the biology of risk takers--and thus keep them from turning from dog to aggressive, dangerous wolf. Among these are changing the year-end bonus system and reining in hot traders with mandatory cooling-off periods. Not surprisingly, another is to broaden trader demographics--i.e., hire more women and more older men. Generally, Coates uses concrete examples to make understandable both the financial and neurological complexities that are central to his argument. Well-presented and intriguing.

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Product Details

ISBN-13:
9781594203381
Publisher:
Penguin Publishing Group
Publication date:
06/14/2012
Pages:
352
Product dimensions:
6.52(w) x 9.38(h) x 1.15(d)
Age Range:
18 Years

What People are saying about this

Robert Sapolsky
The picture of humans as rational economic machines has gone down the tubes. This book looks at the biology of why Homo economicus is a myth, and no one is better positioned to write this than Coates—he is a neuroscientist AND an economist AND an ex-Wall Street trader AND a spectacular writer. A superb book. (Robert Sapolsky, neuroscientist, Stanford University; author of Why Zebras Don't Get Ulcers and A Primate's Memoir)
Steven W. Porges
A vivid and brilliantly written narrative: by integrating his knowledge of neuroscience with his experience as a Wall Street trader, Coates pulls the curtain on the physiological mechanisms that prepare some individuals to thrive and others to be devastated by confronting risk. The Hour Between Dog and Wolf insures that future models of risk taking will include the important role of the nervous system. (Steven W. Porges, Ph.D., Director, Brain-Body Center, Department of Psychiatry, University of Illinois at Chicago; author of The Polyvagal Theory: Neurophysiological foundations of emotions, attachment, communication, and self-regulation)
Rita Carter
A terrific read—better than any amount of economic analysis because it explains what lies at the root of economic disaster—those biological drivers that cause sane and clever people to make catastrophic decisions. Every banker should be made to read it! (Rita Carter, author of Mapping the Mind)
Gilbert Taylor
Coates' contribution to the high-interest topic of decision-making—the arena of popular titles by Jonah Lehrer (How We Decide, 2009) and Daniel Kahneman (Thinking, Fast and Slow, 2011)—hails from the realm of investment banking. A former financial trader, Coates combines his real-world experience and his clinical study of human physiology into a story of Wall Street speculators in action. Setting them as fictional characters in a bull market that turns into a bear, Coates constructs a perspective on financial bubbles in which the human endocrine and nervous systems are the central although unconscious actors. As his traders scan their screens, Coates dramatizes surges of hormones and firings of neurons as the traders place bets, comparing the traders' bodily sensations to those of athletes in competition and soldiers in combat. When crashing securities crush irrational exuberance, Coates reaches back to evolutionary biology to describe the flight-or-fight stressors besetting his traders. A provocative challenger to rational choice views of high finance, Coates makes an exceptionally clear, readable presentation that is bound to influence arguments about the regulation of Wall Street.-- Gilbert Taylor
From the Publisher
One of Financial Times' Best Books of 2012

"A profoundly unconventional book... It's also so absorbing that I wound up reading it twice... From the first page to the last, Coates challenges deep-seated assumptions."
Bloomberg Businessweek

"If anyone is qualified to unify the seemingly disparate subjects of financial markets and neurology, it's John Coates... The Hour Between Dog and Wolf is a powerful distillation of his work—and an important step in the ongoing struggle to free economics from rational-actor theory."
The Daily Beast

"[I]t makes intuitive sense that biological responses inform the mood of the markets. This book puts flesh on that idea."
The Economist

"[A] scintillating treatise on the neurobiology of the business cycle. Coates... draws an intimate portrait of life on a trading floor…The result is a provocative and entertaining take on the irrational exuberance—and anxiety—of the modern economy."
Publishers Weekly

"A provocative challenger to rational choice views of high finance, Coates makes an exceptionally clear, readable presentation that is bound to influence arguments about the regulation of Wall Street.”
Booklist

"The picture of humans as rational economic machines has gone down the tubes. This book looks at the biology of why Homo economicus is a myth, and no one is better positioned to write this than Coates—he is a neuroscientist AND an economist AND an ex-Wall Street trader AND a spectacular writer. A superb book."
—Robert Sapolsky, neuroscientist, Stanford University

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