Neuroscience Explains Why Wall Street Needs More Women – Forbes
JC – I think so because in the first stage of our research we were looking at the molecules underlying irrational exuberance and irrational pessimism. We all know they exist, as long ago as Keynes he was talking about animal spirits but the fact that we have got these phrases which we know make sense but we can’t define them, I think there is a molecule of irrational exuberance and a molecule of irrational pessimism. Our original experiments were looking into the possibility that the irrational exuberance molecule was in fact testosterone that builds up in the bodies of the traders as they make money. As testosterone levels rise in your body they start affecting the amount of risk you want to take and the way you assess risk.
On the downside Cortisol levels, which is the most powerful stress hormone, also affects the way you think so you become dramatically and irrationally risk averse under chronically elevated levels of stress hormones. So we think on the upside, during the bubble, these testosterone levels were making the traders insensitive to risk-reward signals but also insensitive to price signals such as the rate of interest. During the crash it didn’t make any difference if you lowered interest rates as low and zero, they were so traumatized they were price insensitive. So if you have a financial community that, at the peak of the bubble, and the pit of the trough, is under the influence of these very highly elevated chemicals then they are basically price insensitive and I think that means that monetary policy stops working.
KM – I think that most of my listeners would think of that as being a male thing. Is there a role for women in helping moderate the market in that sense?
JC – Yes, I think that is probably the most important policy conclusion that has come out of this research that it is entirely possible that bubbles, not bull markets but bubbles, where a bull is just taken too far, are a young male phenomenon. One way of dampening that source of instability in the financial system is to increase the number of women and older men in the markets because they have very different physiology then young males.
KM – So have you gathered evidence to show that women and older men really do have an impact on the financial market?
JC – To do that you have to have a lot of women in the financial markets and there aren’t right now. Even with massive diversity pushes I don’t think there is more than 5 percent women taking risk in the financial world, starting from the trading floors to the asset managers. I think there is a great interest in increasing their numbers but I don’t think the banks quite know how to do that.