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The Neurobiology of Booms and Busts

In his book The Hour Between Dog and Wolf, John Coates, a Wall Street trader turned neuroscientist writes about the effect that the body’s steroid production (i.e. cortisol, testosterone, adrenaline etc.) has on behaviour. For many years this effect has been denied by various doctors. However, research has identified the process of hormone regulation. It goes something like this: 

Testosterone increases risk-taking behaviour and, together with cortisol is one of the most powerful drugs known to the human brain

The brain picks up that you are under stress, for example. It then commands the kidneys to release cortisol to increase awareness and ready you for the fight-or-flight response.  But there is a twist. Modern research, of which Antonio Damasio also writes in his book Descartes’ Error, has revealed that the very hormones that the brain releases, influences the brain that changes your behaviour. Testosterone increases risk-taking behaviour and, together with cortisol is one of the most powerful drugs known to the human brain.

How does this explain booms and busts? According to a US psychiatrist, an increasing number of traders are being prescribed anti-depressants. The anti-depressants effectively numbs the traders to the effects of too much risk; to know when to fight of flee, causing them to take ever larger risks. Consequently, the Dot Com Bubble grew larger than it should have, and its aftermath more widespread than could have been predicted. We can only assume that the next bubble will be even larger…

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Werner van Zyl
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E-mail: werner@neuromind.co.za