Equality means equality for everyone.
A work colleague sent out a link on a traveler’s listserv (let me know if you see any possible relevance) to the following article, accompanied by the note:
Fascinating study about men.
A study finds raging male hormones pumping up the bull-bear cycle.
A fascinating study indeed, but does it tell us more about men, or about the ease with which a single poorly conducted bit of research can so easily lead to the implementation of discriminatory anti-male policies. The New York Times article opened with:
If a research paper published earlier this year is correct, traders have become prisoners of their endocrine systems — testosterone, the elixir of male aggressiveness, during a bull market; cortisol, a steroid that helps the body deal with stress, when the bears take over.
One investment strategist intuitively grasped the situation when he recently told The New York Times:
“Normally markets are driven by fear and greed. Now it’s fear and fear.” In other words, instead of a rhythm of testosterone alternating with cortisol, it’s been cortisol and more cortisol for weeks. Actually there was a step in between — greed and greed, the bubble period. That’s when traders were making a lot of money, which made them pump out extra testosterone, grow overconfident and overcompetitive, and take on more and more risks that eventually went bust.
This seemed a fairly sweeping conclusion to explain such a complicated phenomenon, so I figured the study must be built on a firm analysis of years of data across various markets. But the study itself told a slightly different story.
The study did not take place over any long term period of bubble or bust. It took place in London, and back in April before the major economic disaster was apparent to people’s endocrine system, and the study was conducted over only a period of 8 days based on surveys of 17 people!
In fact, the researchers themselves acknowledged their research
had the further drawback of being conducted during what turned out to be a period of low volatility. Realized volatility on the Bund contract during the 2 weeks of the study was 3.45%, whereas the average for the previous 5 years was 4.75% [with a maximum of 11.76% reached in the late autumn of 2001, after September 11, 2001 (9/11), and a minimum of 1.73% reached earlier that same year]. Such low volatility makes it difficult to assess the potential size of the hormonal effects stemming from the markets.
8 days during low volatility can be extrapolated to long-term trends in periods of high volatility?
There’s also a certain tautology here, if I understand the endocrine system. Fear leads to anxiety which leads to cortisol production which tends to result in the slowing of the market through less risk taking. Greed leads to competitiveness which leads to testosterone production which leads to market build up through risky behaviour. So what market activity can’t be explained by either one or a combination of these neural chemicals? Maybe periods of relative stability, like the ones that take place most of the time where small fluctuations fail to lead to large ones as might be expected.
The study was methodologically a mess. It focused exclusively on male traders with absolutely no control group. No comparison to days with very little market fluctuation to act as a baseline. No thought to conduct a similar study on women, say by comparing large numbers of male and female investors rather then just the mostly male traders.
What about confusing correlation with causation. At least one person got it.
The New York Times articles reports Jonathan D. Cohen, director of the neuroscience program at Princeton.
“This is intriguing, but correlation is not causation,” he said. “That’s the first thing we learn in science.”
Too bad it wasn’t the first thing the researchers learned. Although it may have dawned on them when they were forced to conclude:
Cortisol was likely responding to uncertainty rather than the other way around, because the calendar of economic releases and the relative importance of the economic statistics that create the uncertainty are independent of hormones.
So they aren’t sure that it’s cortisol leading to irrational behaviour and hence uncertain markets, or rather an evolutionarily developed way of coping with intrinsic uncertainty (always of greater concern for hunters then gatherers).
Yet from one paltry study, without comparison with the effects of female hormones (yes they have them too) Dr. Coates concluded:
It’s possible that bubbles are a male phenomenon
and gave a bit of hiring advice, based on the fact that he suspected that women were less likely to produce excess cortisol:
[get] more women and older men on trading floors.
But before we tell highly educated and every bit as qualified individuals that they will be discriminated against with a new round of affirmative action simply because of their gender, perhaps a few more studies should be conducted focusing on more then 17 people for longer then 8 days. After all, “Research into how this may happen is in its infancy,” admitted the same researcher that would impose such instant conclusions on the job prospects of male traders.
Maybe for example we should start by looking into whether there aren’t some advantages to all this chemistry. After all, the researches found
our results suggest that high morning testosterone predicts greater profitability for the rest of that day…we found a significant relationship between testosterone and financial return.
Indeed, several studies bemoan the fact that since men’s risk taking nets them a higher lifetime return on investment women are disadvantaged when it comes to retiring (as an aside, note how testosterone – whether bringing damage or assistance to men’s financial decision making – is always interpreted with concern for its effects on anyone other then men like society, women, etc. No concern is given in either research paper or editorial on the possible health effects, for example, to men). The researchers found
Cortisol can experience changes of these magnitudes in situations other than distressing ones like losing money; it can rise in expectation of challenge and sustained effort, and it does so to promote anticipatory arousal and focused attention (6). An HPA reaction of this sort can occur when people are faced with situations of novelty and uncertainty (5). Traders face varying levels of novelty and uncertainty every day, so this feature of their jobs may help explain the high variance of their cortisol levels.
So it seems like these chemicals evolved due to selection pressure in competitive situations. This is a good thing. The researches go on
“If exposure is acute, glucocorticoids can be euphorogenic, increasing motivation and promoting focused attention. They can also aid the consolidation and retrieval of important memories”.
When it comes to testosterone, the researchers reported “
When traders in our study experienced acutely raised testosterone, for example, they made higher profits, perhaps because testosterone has been found, in both animal and human studies, to increase search persistence (20), appetite for risk (21), and fearlessness in the face of novelty (22, 23), qualities that would augment the performance of any trader who had a positive expected return.”
So testosterone and cortisol have good, useful effects too! Who would have guessed testosterone are responsible for more then just poisoning.
But try to find that side of the story in the article. Maybe there was no room for it.
No, but there was room to include a report of an entirely irrelevant but male-bashing article from The Financial Times: “Icelandic Women to Clean Up Male Mess” where the country appointed two women to run banks nationalized after they were apparently bankrupted by men. Does 2 women and a handful of men merit a title that seems to imply all Icelandic women were cleaning a mess related directly to intrinsic maleness.
But I digress yet again. What I’m getting at is that much of this suggests that in the long run a male-only group of traders will do better for overall economic growth (not focusing on temporary boom and bust periods), so maybe we ought to keep women out of these and all high risk jobs!
I’m of course not suggesting anything like that, but I am wondering what we’d think if someone did make the case publicly that female biology might account for certain job rate discrepancies and inabilities (without necessarily even implying any concordant anti-women policy changes as was done against men here).
Oh right, he’d probably be forced to resign. At least that’s what happened to Harvard University President Lawrence Summers who dared to suggest that there were three reasons women were underrepresented in certain professions rather then just the acceptable one, namely systematic discrimination by elitist men.
Courtesy of wikipedia:
He [Summers] gave the three main hypotheses in the following order: that more men than women were willing to make the commitment in terms of time and flexibility demanded by high-powered jobs, that there were differences in the innate abilities of men and women (more specifically, men’s higher variance in innate abilities or preferences relevant to science and engineering), and that the discrepancy was due to discrimination or socialization. He also stated his view that the order given reflected the relative importance of each of the three factors. An attendee made Summers’ remarks public, and an intense response followed in the national news media and on Harvard’s campus.
Summers never said discrimination didn’t exist, but simply added two well founded biological explanations as possible additional considerations, and was eventually forced to resign for it.
Unfortunately, no journalist worth his salt will ever publish an article highlighting the flaws in this “fascinating study about men” or reporting on the articles sure to be coming out shortly demolishing this bit of poorly conducted pseudoscience. Which means the notion of moving discriminatory affirmative action into this new market will likely go unchallenged.