For better or worse, the women traders I spoke with tended to classify themselves as more conservative than their male counterparts. A self-described math nerd, Nancy Davis was head of Goldman Sachs’ proprietary derivatives-trading desk for five years. “I think generally, women are more likely to admit that they’re wrong, faster. I think there’s less ego for whatever reason with women traders, the ones I know at least,” she says. She made a habit of keeping her boss in the loop on every trade—something she calls having “buy-in.” “If there’s a position going sour on me, I’m not going to sit and say, ‘I know what’s best.’ It would make me want to raise my hand and get advice from other people. It’s like asking for directions when driving.”
A former boss of mine—a hedge-fund manager named Nancy—once barked out one of the most useful pieces of stock-buying advice I’ve ever heard. One of her consultants had amassed in his personal account a huge position in a tech company, Rambus, having ridden it from something like $10 a share to well above $100. It was the height of the Internet boom, and the normally self-effacing geek was strutting around the office, dizzy with future plans for his nest egg. Nancy would peer at him over her monitors, egg-salad sandwich in hand, and say, “Sell half.” It was the sort of conservative strategy she tended to practice herself—and of course it is an investment strategy that many men practice as well. But sadly her tech consultant wasn’t one of them. He was certain that the thing would keep going higher, and the thought of missing out on it made him crazy. Months later, when Rambus tanked, he rode it all the way back down.
John Coates, a senior research fellow in neuroscience and finance at the University of Cambridge, studies just this sort of magical thinking. During the IPO heyday of the late nineties, before he became a full-time scientist, Coates was running a trading desk at Deutsche Bank. “Male traders were acting odd during the bubble,” he recalls. “They were displaying what we call clinical symptoms of mania. They were delusional, euphoric, overconfident, had racing thoughts, a diminished need for sleep.” One of his colleagues—a “kid” with a general-arts degree and $500,000-a-year salary—quit his job to start a nebulous Internet company. “I asked him what the Internet company would do, and he said he didn’t know yet,” Coates says. Meanwhile, the few women on the desk seemed mostly unaffected by the frenzy. “The guys had their eyes rolling back in their heads, desperate to get involved in what some genius was up to, and the women just didn’t buy into it.”
“The banking crisis was caused by doing what no society ever allows: permitting young males to behave in an unregulated way. Anyone who studied neurobiology would have predicted disaster.”
Positioning himself as a sort of endocrine whisperer of the financial system, Coates argues that if women made up 50 percent of the financial world, “I don’t think you’d see the volatile swings that we’re seeing.” Bubbles, he believes, may be “a male phenomenon.”
His colleague, neuroscientist Joe Herbert, agrees. “The banking crisis was caused by doing what no society ever allows, permitting young males to behave in an unregulated way,” he says. “Anyone who studied neurobiology would have predicted disaster.”
At Cambridge, Coates and Herbert launched a study of the way testosterone and cortisol—which is released by the body in response to stress—rose and fell in a group of traders in London as they worked the markets. Testosterone surged in traders who were experiencing winning streaks, leading to a greater sense of confidence and a higher propensity for taking risks. This improved the trader’s chances of winning again, in a kind of positive-feedback loop. At some point, though, the effect of the testosterone became toxic, and traders made decisions that were self-defeating, almost stupid. Cortisol, the stress hormone, behaved differently, shooting up with the volatility of the market. When the market started to crash, cortisol spiked as well, possibly exaggerating the sell-off.
When Coates first suggested that men on trading floors might be at the mercy of a swirling cocktail of hormones, he expected traders to be offended. “But every trader knows, when you’re on a winning streak you act like a dickhead, and then you end up giving back all the money you made on the way up,” he says. “I actually got a lot of e-mails from traders saying it was good to know where this odd behavior comes from.”
Dug Hirschhorn, a well-built fellow with a shiny bald head and feline features, bills himself as a “peak performance coach” to Wall Street traders. He tries to teach men to make better decisions and to avoid destructive habits, such as becoming too emotional about their positions or not knowing when to cut their losses and sell. “I literally have to deconstruct a lot of their testosterone,” Hirschhorn says. “A lot of behaviors that are counterproductive to success in trading are typical male traits, such as being too aggressive, too stubborn, or being ego driven.”