Like war, activity on the trading floor “consists of long stretches of boredom punctuated by brief periods of terror”, writes John Coates in The Hour Between Dog and Wolf.
What follows is a minute-by-minute analysis of the trader’s metabolism which reveals the effects of the euphoria, the stress, the boredom and the heart-stopping moments of hyperactivity where “nature and nurture conspire to produce an awful train wreck, leaving behind mangled careers, damaged bodies and a devastated financial system”.
In this startling and unconventional book, the neuroscientist and former Wall Street trader John Coates shows us the bankers in their natural environment. He reveals how their biochemistry has a lasting and significant impact on our economy. We learn how risk stimulates the most primitive part of the banker’s brain and how making the deals our bank balances depend on provokes an overwhelming fight-or-flight response. Constant swinging between aggression and apprehension impairs their judgment, causing economic upheaval in the wider world. The transformation between each split-second decision is what Coates calls the hour between dog and wolf, and understanding the biology behind bubbles and crashes may be the key to stabilising the markets.
John Coates is a senior research fellow in neuroscience and finance at the University of Cambridge. He previously worked on Wall Street for Goldman Sachs, and ran a trading desk for Deutsche Bank. In 2004 he returned to Cambridge to research the biology of financial risk-taking.
The author tells us how, afterlife as a Wall Street trader for 12 years, he retrained as a psychologist to try to prove or disprove a theory about what drives animal spirits in the market, that theory is that this is caused by high and increasing levels of testosterone. The more testosterone, the more risk you will take – and often the more you will gain. But just as in the world of animals, excess testosterone leads to hubris and downfall (you take on more and more challenges, become more and more convinced you are invincible until you finally overdo it and die), so too in the markets, increased risk-taking will eventually spiral out of control.
Coates watched the bull market go wild, noting “how its energy and excitement overflowed the stock exchange, permeated the culture and intoxicated people”. Traders “on an extended winning streak experience a high that is powerfully narcotic”. This high, he notes, is an “irrational exuberance” which is very close to Keynes’ “animal spirits”, thereby providing the first bingo moment of The Hour Between Dog and Wolf. He wonders if this irrational exuberance “might be driven by a chemical”. He calls the chemical the Bull-Market Molecule. This Bull-market Molecule proves to have massive consequences for both personal life and the wider economy.
On the surface of it, The Hour Between Dog and Wolf is about the physiological and neurological changes that take place within traders’ bodies as they do their buying and selling. But Coates disentangles the mind/body dichotomy with a forensic skill to show how our bodies and brains are interlinked, and this book has profound implications for the history of philosophy and will “bridge the abyss of misunderstanding that has separated the `two cultures’ of science and the humanities”.
The Hour Between Dog and Wolf is at most, a total game-changer and at least, a very stimulating read.
‘This brilliant book shows how human biology contributes to the alternating cycles of irrational exuberance and pessimism that destabilise banks and the global economy – and how the system could be calmed down by applying biological principles … Should be top of the summer reading list for Jamie Dimon, chief executive of JPMorgan, and anyone else wondering why traders so often get banks into trouble’ Financial Times
‘If Coates is right- the evidence he presents is compelling- then the financial; crises that so frequently plague capitalism find their roots in human biology’ New Scientist Magazine
‘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
‘It makes intuitive sense that biological responses inform the mood of the markets. This book puts flesh on that idea’ Economist
| Title | The Hour Between Dog and Wolf: Risk Taking, Gut Feelings and the Biology of Boom and Bust |
| Author | John Coates |
| first published | May 1st 2012 |
| Publisher | Random House Canada |
| ISBN | 0307359670 |
| Language | English |
