Presentation by Dr. John M. Coates - Fight or Flight on Wall Street: The Biology of Financial Risk-Taking
FIGHT OR FLIGHT ON WALL STREET: THE BIOLOGY OF FINANCIAL RISK-TAKING
Abstract
Alan Greenspan, echoing the words of John Maynard Keynes, lamented that economics cannot fathom the will o' the wisp of market sentiment. Yet today, neuroscience and endocrinology may help us understand these troublesome spirits. For the waves of irrational exuberance and pessimism that destabilize the financial markets may be driven by naturally produced steroid hormones. In this talk I describe a series of experiments conducted on a trading floor in the City of London designed to show that steroid hormones shift risk preferences systematically across the cycle, exaggerating the peaks and troughs. The experiments have also begun to show how biological traits, training regimes, management practices, and compensation schemes work together to occasionally produce a prudent risk taking, but more often conspire to produce the irresponsble trading which recently brought on the credit crisis.
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Biography
Dr. John Coates is widely recognized in the scientific world and has close experience of the financial world. After completing his undergraduate degree at the University of Toronto, and his PhD at Cambridge University, he worked on Bay Street for a year and subsequently on Wall Street, working for both Goldman Sachs and Merrill Lynch, before running a derivatives trading desk for Deutsche Bank; he then returned to Cambridge, where he is now Senior Research Fellow in Neuroscience and Finance, focusing on analyzing and understanding how our biology affects our financial risk-preferences.
