In Poetics, Aristotle codified the structure of Western narrative and introduced us to the idea of a recognition moment—that point in a story where all of a sudden we understand what is going on, and, by that very process, more about ourselves. Since Aristotle’s day, these moments have been considered the preserve of drama, literature, and philosophy. But today they are increasingly provided by human biology. For when we understand what is going on inside our bodies, and why, we are met with repeated Aha! moments. These range from the fun: “Oh, so that’s why I get butterflies in my stomach when excited!” to the deadly serious: “So that’s why stress is so tormenting, why it contributes to hypertension, immune disorders, learned helplessness, and depression!” Today human biology, perhaps more than any other subject, throws light into the dark corners of our lives. And that means it can...
I stumbled across this untapped potential of biology when writing The Hour Between Dog and Wolf, a book intended to summarize research I and my colleagues had been conducting into the biology of risk taking, and specifically financial risk taking.
The roots of that research took hold while I was running a trading desk on Wall Street during the dot-com bubble. At that time I, like pretty much everyone else, assumed that financial risk taking was a purely cognitive activity, involving the calculation of asset returns, probabilities, and the optimal allocation of capital. That basic physiology played any role in risk taking was rarely, if ever, considered. Indeed, in economics I found a mind-body split as pure as anything conceived by Plato or Descartes. But anyone who has worked in finance knows that when we contemplate taking a risk, we do a lot more than just think about it—we prepare for it physically.
Our bodies, expecting action, switch on vast networks of chemical and electrical circuitry ensuring that body and brain fuse as a single functioning unit. Such a fusion endows us with the fast reactions and gut feelings we need to survive. But under circumstances of outrageous opportunity or terrifying failure, our biology can overreact, leading us into a state of wild-eyed exuberance or debilitating risk aversion.
Convinced we should be looking at the role of biology in financial risk taking, I made (and frequently regretted) the decision to leave Wall Street and return to the University of Cambridge. My colleagues and I set up an ongoing series of experiments on a trading floor in the City of London and at Addenbrooke’s Hospital in Cambridge. We have collected data suggesting that rising levels of testosterone among traders on a winning streak can shift their risk preferences to such an extent that they start placing trades of ever larger size, with ever-worsening risk-reward trade-offs, until they eventually blow up, frequently taking their bank with them. The stress response, on the other hand, is triggered during financial crises and can promote a risk aversion that causes the markets to freeze up.
In The Hour Between Dog and Wolf, ?I provide the reader with an inkling of just how physical financial risk taking truly is. I weave together physiology with action scenes from a trading floor in the hope of evoking in the reader the very biological reactions I am explaining: the feeling of being riveted by unexpected news flashing across the wire, when the locus coeruleus—the brain’s early warning system—places our brain and body on high alert; the euphoria resulting from a multimillion-dollar profit; and the paralyzing fear as the poison of stress creeps through our lives. I do not know if I succeeded in evoking these feelings. That is not for me to decide. Whether I did or not, though, I remain convinced that biology and storytelling should become closer colleagues. Read an excerpt from The Hour Between Dog and Wolf.
John Coates is senior research fellow in neuroscience and finance at the University of Cambridge. He previously traded derivatives for Goldman Sachs and ran a trading desk for Deutsche Bank.