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Cambridge Neuroscientist Dr John Coates publishes new book on the biology of risk taking

Cambridge Neuroscientist Dr John Coates has just published a book entitled “The Hour Between Dog and Wolf: Risk-Taking, Gut Feelings and the Biology of Boom and Bust”.

 

Coates (pictured left) spent 12 years running a trading desk on Wall Street before returning to Cambridge where he is now a senior research fellow. His experience with market bubbles and their ensuing crashes allowed him to observe first-hand the often unstable behaviour of traders. He suspected that the waves of irrational exuberance and pessimism destabilizing the financial markets may be driven by physiological changes taking place within traders as they make or lose money and as market volatility rises and falls. But what exactly was it that was taking place in the bodies and brains of these traders? Coates turned to neuroscience for the answer.

 

John asked the questions “Could it be that testosterone rises in traders on a winning streak, making them feel infallible and propelling markets to unsustainable heights? Then, as tech stocks crash, are traders overwhelmed by the stress hormone, cortisol?”

 

In a series of experiments set on a trading floor in the City and in a lab in Cambridge, Coates set about  testing the hypothesis that these rising levels of hormones shift risk preferences systematically across the business cycle, destabilizing it. Since then he and his colleagues have extended their research into the effects of other physiological systems on financial risk taking, specifically the autonomic nervous system and the interoceptive pathways carrying our fabled gut feelings. More generally they have tried to show that risk taking, even financial risk taking, is a profoundly physical activity. Economics assumes that financial risk taking is a purely cognitive activity but Coates and his colleagues believe it involves our body, not just our mind.

 

In this book Coates sketches out a universal biology of risk taking, one shared by a surfer riding a monster wave, a driver speeding along a twisting mountain road, a politician winning a majority, and a trader barreling into sub-prime mortgages. Under the pressure of risk our biology transforms us into different people, a transformation Coates, drawing on an old French expression, calls The Hour Between Dog and Wolf.

 

Here is what some of the critics have been saying:

 

"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 

 

"This is an absolutely fascinating and important book. In lucid and entertaining prose, Coates explains why biology matters in finance - even though it has long been ignored - and why we all need to think more about the interaction between our minds, bodies and the markets. This work is a real eye-opener and a challenge to us all - and one of the most original and thought-provoking works about finance to have emerged in years." - Gillian Tett, U.S. Managing Editor of the Financial Times; author of Fool's Gold 

 

"A vivid and brilliantly written narrative: By integrating his knowledge of neuroscience with his experience as a Wall Street trader, Coates pulls aside the curtain on the physiological mechanisms that prepare some individuals to thrive and others to be devastated when confronting risk. The Hour Between Dog and Wolf ensures that future models of risk taking will include the important role of the nervous system." - Stephen W. Porges, Professor of Psychiatry, University of Illinois at Chicago; author of The Polyvagal Theory 

 

"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." - Rita Carter, author of Mapping the Mind

 

 

Posted on 15/05/2012

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