An interesting paper was recently published by Dr. Mark Stein,  [1] an award-winning scholar from the University of Leicester, arguing powerfully that  bankers, politicians and economists have in recent years been displaying behaviour very similar to that seen in many disturbed individuals, behaviours which could be described as ‘manic’. In particular there has been a massive denial of reality and of the risks being taken, and many foolhardy and dangerous practices which have led to recent financial crises, he argues, a trend he sees as has having been happening for the last two decades. He interestingly uses psychoanalytic concepts less in fashion these days to describe a manic state of mind marked by omnipotence, triumphalism, overactivity and denial of reality. The kind of actions he singles out include the huge increase in credit derivative deals, industrializing credit default swaps and the removal of regulatory safety checks, such as the repeal in the United States of the landmark Glass-Steagall banking controls. These are all viewed as a manic response to the financial crises within capitalism. He argues that unfettered liberalisation, with a very triumphalist feel following the collapse of communism, has hastened this path.

He is not alone in such views and in fact there seems to be a whole host of neuroscience and other psychological evidence that points in this kind of direction. We have seen the burgeoning research based around the ideas of neuroeceonomics, spearheaded by Paul Zak, for example, who has argued strongly that we need a more balanced business culture, with more women in boardrooms, and the development of a culture which would lead to the release of more oxytocin, a hormone linked to feeling trust and empathy and generosity.  One  former trader  John Coates  [2] turned to neuroscience and is now at Cambridge University and has found similar things. He studied the effects of trading in high pressure environments on the brains and hormonal systems of those involved, and his research has recently been published in a readable new book. In particular he describes young male traders fuelled by high levels of testosterone that helptheir confidence soar, and also living on the edge and releasing huge amounts of the stress hormone cortisol. High levels of testosterone can boost confidence levels unrealistically, and is also linked with the release of the hormone dopamine, which we need to release in order to feel excited about things but also leads us to be edgy, to take risks and also to become addicted. Many city traders interestingly have addictions to drugs like cocaine that work on the dopamine system. Coates’ view is similar to Stein’s, albeit using different language, as he describes peaks of unmerited optimism and also troughs of terrible pessimism. He too has argued like the neuroeconomists such as Zak and researchers such as Niederle  [3] that more women in the city would make a difference and that in his studies women took much more care over decisions and were not so fuelled by a dopamine rush and levels of testosterone and cortisol which make it hard to asses genuine risk; rather women, who release more oxytocin on average, are more likely think more carefully about decisions, act less competitively and also try to work out after the even  whether they have done the right thing, unlike male traders who do not reflect in such a way. I might just be jealous, as testosterone levels fall dramatically with age, and many  traders are young men, but it seems to be the case that young male traders are more likely to invest in riskier portfolios when they have higher testosterone levels, and indeed we even know that their risk-taking increases hugely just after having been looking at pornographic images [4]!  A worry is, as much of the press have been increasingly making clear, that it is the markets who are increasingly running matters and have our future in their hands  rather than democratic governments,  maybe not a comfortable thought.

[1]        M. Stein, ‘A culture of mania: a psychoanalytic view of the incubation of the 2008 credit crisis’, Organization, vol. 18, no. 2, pp. 173–186, 2011.

[2]        J. Coates, The Hour Between Dog and Wolf: Risk Taking, Gut Feelings and the Biology of Boom and Bust. Penguin Press HC, The, 2012.

[3]        M. Niederle and L. Vesterlund, ‘Gender and competition’, Annu. Rev. Econ., vol. 3, no. 1, pp. 601–630, 2011.

[4]        B. Knutson, G. E. Wimmer, C. M. Kuhnen, and P. Winkielman, ‘Nucleus accumbens activation mediates the influence of reward cues on financial risk taking’, NeuroReport, vol. 19, no. 5, pp. 509–513, Mar. 2008.