by John Coates
MIND AND BODY IN THE FINANCIAL MARKETS
Research on body–brain feedback, even within physiology and neuroscience, is relatively new, and has made only limited inroads into economics. Why is this? Why have we for so long ignored the fact that we have bodies, and that our bodies affect the way we think?
The most likely reason is that our thinking about the mind, the brain and behaviour has been moulded by a powerful philosophical idea we inherited from our culture – that of a categorical divide between mind and body. This ancient notion runs deep in the Western tradition, channelling the riverbed along which all discussion of mind and body has flowed for almost 2,500 years. It originated with the philosopher Pythagoras, who needed the idea of an immortal soul for his doctrine of reincarnation, but the idea of a mind–body split was cast in its most durable form by Plato, who claimed that within our decaying flesh there flickers a spark of divinity, this being an eternal and rational soul. The idea was subsequently taken up by St Paul and enthroned as Christian dogma. It was by that very edict also enthroned as a philosophical conundrum later known as the mind–body problem; and later physicists such as René Descartes, a devout Catholic and committed scientist, wrestled with the problem of how this disembodied mind could interact with a physical body, eventually coming up with the memorable image of a ghost in the machine, watching and giving orders.
Today Platonic dualism, as the doctrine is called, is widely disputed within philosophy and mostly ignored in neuroscience. But there is one unlikely place where a vision of the rational mind as pure as anything contemplated by Plato or Descartes still lingers – and that is in economics.
Many economists, or at any rate those adhering to a widely adopted approach known as neo-classical economics, assume our behaviour is volitional – in other words, we choose our course of behaviour after thinking it through – and guided by a rational mind. According to this school of thought, we are walking computers who can calculate the rewards of each course of action open to us at any given moment, and weight these rewards by the probability of their occurrence. Behind every decision to eat sushi or pasta, to work in aeronautics or banking, to invest in General Electric or Treasury bonds, there purr the optimising calculations of a mainframe computer.
The economists making these claims recognise that most people regularly fall short of this ideal, but justify their austere assumption of rationality by claiming that people behave, on average, ‘as if’ they had performed the actual calculations. These economists also claim that any irrationality we display in our personal lives tends to fall away when we have to deal with something as important as money; for then we are at our most cunning, and come pretty close to behaving as predicted by their models. Besides, they add, if we do not act rationally with our money we will be driven to bankruptcy, leaving the market in the hands of the truly rational. That means economists can continue studying the market with an underlying assumption of rationality.
This economic model is ingenious, at moments quite beautiful, and for good reason has wielded enormous influence on generations of economists, central bankers and policy-makers. Yet despite its elegance, neo-classical economics has come under increasing criticism from experimentally-minded social scientists who have patiently catalogued the myriad ways in which decisions and behaviours of both amateur and professional investors stray from the axioms of rational choice. One reason for its lack of realism is, I believe, that neo-classical economics shares a fundamental assumption with Platonism – that economics should focus on the mind and the thoughts of a purely rational person. Consequently, neo-classical economics has largely ignored the body. It is economics from the neck up.
What I am saying is that something very like the Platonic mind–body split lingers in economics, that it has impaired our ability to understand the financial markets. If we want to understand how people make financial decisions, how traders and investors react to volatile markets, even how markets tend to overshoot sensible levels, we need to recognise that our bodies have a say in our risk-taking. Many economists might reiterate that the importance of money ensures that we act rationally where it is concerned; but perhaps it is this very importance which guarantees a powerful bodily response. Money may be the last thing about which we can remain cool.
Economics is a powerful theoretical science, with a growing body of experimental results. In fact many economists have come to question the assumption of a Spock-like rationality, even as a simplifying assumption, and a noteworthy group among them, beginning with the Chicago economist Richard Thaler and two psychologists, Daniel Kahneman and Amos Tversky, have started a rival school known as behavioural economics. Behavioural economists have succeeded in building up a more realistic picture of how we behave when dealing with money. But their important experimental work could today easily extend to the physiology underlying economic behaviour. And signs are some economists are heading that way. Daniel Kahneman, for one, has conducted research in the physiology of attention and arousal, and has recently pointed out that we think with our body.
He is right. We do. To understand just how our body affects our brain we should first recognise that they evolved together to help us physically pursue an opportunity or run away from a threat. When confronted by an opportunity for gain, such as food or territory or a bull market, or a threat to our well-being, such as a predator or a bear market, our brain sparks a storm of electrical activity in our skeletal muscles and visceral organs, and precipitates a flood of hormones throughout our bodies, altering metabolism and cardiovascular function in order to sustain a physical response. These somatic and visceral signals then feed back on the brain, biasing our thinking – our attention, mood, memory – so that it is in sync with the physical task at hand. In fact, it may be more scientifically accurate, although semantically difficult, to stop speaking in terms of brain and body at all, as if they were separable, and to speak instead of a whole-person response to events.
Were we to start viewing ourselves in this manner we would find economics and the natural sciences beginning to merge. Such a prospect may seem futuristic and strike some people as scary and a touch dehumanising. Scientific progress, admittedly, often heralds an ugly new world, divorced from traditional values, dragging us in a direction we do not want to go. But occasionally science does not do that; occasionally it merely reminds us of something we once knew, but have forgotten. That would be the case here. For the type of economics suggested by recent advances in neuroscience and physiology merely points us back to an ancient, commonsensical and reassuring tradition in Western thought, but one that has been buried under archaeological layers of later ideas – and that is the type of thinking begun by Aristotle. For Aristotle was the first and one of the greatest biologists, perhaps the closest and most encyclopaedic observer of the human condition, and for him, unlike Plato, there was no mind–body split.
In his ethical and political works Aristotle tried to bring thought down to earth, the catchphrase of the Aristotelians being ‘Think mortal thoughts’; and he based his political and ethical thinking on the behaviour of actual humans, not idealised ones. Rather than wagging a finger at us and making us feel shame for our desires and needs and the great gap existing between our actual behaviour and a life of pure reason, he accepted the way we are. His more humane approach to understanding behaviour is today in the process of being rediscovered. In Aristotle we have an ancient blueprint of how to merge nature and nurture, how to design institutions so that they accommodate our biology.
Fig. 1. Detail from Raphael’s School of Athens. Plato, on the left, holds a copy of his dialogue the Timaeus and points to the heavens. Aristotle holds a copy of his Ethics and gestures to the world around him, although with the palm of his hand facing down he also seems to be saying, ‘Plato, my friend, keep your feet on the ground.’
Economics in particular could benefit from this approach, for economics needs to put the body back into the economy. Rather than assuming rationality and an efficient market
– the unfortunate upshot of which has been a trading community gone feral – we should study the behaviour of actual traders and investors, much as the behavioural economists do, only we should include in that study the influence of their biology. If it turns out that their biology does indeed exaggerate bull and bear markets then we have to think anew about how to alter training programmes, management practices, even government policies in order to counteract it.
At the moment, though, I fear we have the worst of both worlds – an unstable biology coupled with risk-management practices that increase risk limits during the bubble and decrease them during the crash, plus a bonus scheme that rewards high-variance trading. Today nature and nurture conspire in creating recurrent disasters. More effective policies will have to consider ways of managing the biology of the market. One way to do that may be to encourage a more even balance within the banks between men and women, young and old, for each has a very different biology.
WHAT UNITES US
To begin the story I want to tell, we need to get a better understanding of how brain and body cooperate in producing our thoughts and behaviour, and ultimately our risk-taking. The best way to do that is to look at what might be called the central operation of our brain. What might that be? We may be tempted to answer, given our heritage, that the central, most defining feature of our brain is its capacity for pure thought. But neuroscientists have discovered that conscious, rational thought is a bit player in the drama that is our mental life. Many of these scientists now believe that we are getting closer to the truth if we say that the basic operation of the brain is the organisation of movement.
That statement may come as something of a shock – I know it did for me – even a disappointment. But had I learned its truth earlier than I did, I would have saved myself years of misunderstanding. You see, it is common when starting out in neuroscience to go looking for the computer in the brain, for our awesome reasoning capacities; but if you approach the brain with that goal you inevitably end up disappointed, for what you find is something a lot messier than expected. For the brain regions processing our reasoning skills are inextricably tangled up with motor circuits. You tend to get a bit annoyed at the lack of simplicity in this architecture, and frustrated at the inability to isolate pure thought. But that frustration comes from starting out with the wrong set of assumptions.
If, however, you view your brain and body and behaviour with a robust appreciation of the fact that you are built to move, and if you let that simple fact sink in, then I am willing to bet you will never see yourself in quite the same way again. You will come to understand why you feel so many of the things you do, why your reactions are often so fast as to leave conscious thought behind, why you rely on gut feelings, why it is that during the most powerful moments of your life – satisfying moments of flow, of insight, of love, of risk-taking, and traumatic moments of fear, anger and stress – you lose any awareness of a split between mind and body, and they merge as one. Seeing yourself as an inseparable unity of body and brain may involve a shift in your self-understanding, but it is, I believe, a truly liberating one.
TWO
Thinking with Your Body
Evolutionary biologists frequently look back over our past and try to spot the small advances here and there, the minor differences between us and our animal cousins, which might account for humans’ phenomenal ascent to the top of the food chain. They have found, not surprisingly, that many of these advances occurred in our body: the growth of vocal cords, for instance; or an opposable thumb, which gave us the manual dexterity to make and use tools; even an upright posture and a lack of fur – the former, it has been argued, minimising the body surface exposed to the midday sun, the latter making the cooling of our body so much easier, and both together permitting us to lope after swifter but fur-covered prey until it collapsed from heat exhaustion. On the African savannah we did not need to outrun or outfight our prey, so this theory claims, merely outcool it.
Many of the advances leading to our dominance over other animals did indeed take place in the body, which over time became taller, straighter, faster, cooler, more dextrous and much more talkative. Other advances of equal importance occurred in the brain. According to some evolutionary accounts, human prehistory was driven by the growth of our neo-cortex, the rational, conscious, newest and outermost layer of the brain. As this brain structure blossomed, we developed the ability to think ahead and choose our actions, and in so doing became liberated from automatic behaviours and an animal enslavement to immediate bodily needs. This story of the brain’s evolution and the increasingly abstract nature of human thinking is for the most part correct. But it is also the subplot of the evolutionary story that is most prone to misunderstanding. It can too easily imply that our bodies became ever less important to our success as a species. An extreme example of this view can be found in science fiction, where future humans are frequently portrayed as all head, a bulbous cranium sitting atop an atrophied body. Bodies, in sci-fi and to a certain extent in the popular imagination, are seen as relics of a bestial prehistory best forgotten.
The very existence of such a story, lurking in the popular imagination, is yet another testament to the staying power of the ancient notion of a mind–body split, according to which our bodies play a secondary and largely mischievous role in our lives, tempting us from the path of reason. Needless to say, such a story is simplistic. Body and brain evolved together, not separately. Some scientists have recently begun to study the ways in which the lines of communication between body and brain became more elaborate in humans compared to other animals, how over time the brain became more tightly bound to the body, not less. With the benefit of their research we can discern another story about our history that is at once more complete and far more intriguing – that the true miracle of human evolution was the development of advanced control systems for synchronising body and brain.
In modern humans the body and brain exchange a torrent of information. And the exchange takes place between equals. We tend to think it does not, that information from the body constitutes nothing more than mere data being input into the computer in our head, the brain then sending back orders on what to do. The brain as puppet master, the body as puppet, to change analogies. But this picture is all wrong. The information sent by the body registers as a lot more than mere data; it comes freighted with suggestions, sometimes merely whispered, at others forcefully shouted, on how your brain should use it. You experience the more insistent of these informational prods as desires and emotions, the more subtle and dimly discernible as gut feelings. Over the long years of our evolutionary prehistory, this bodily input to our thinking has proved essential for fast actions and good judgement. Indeed, if we take a closer look at the dialogue between body and brain we will come to appreciate just how crucially the body contributes to our decision-making, and especially to our risk-taking, even in the financial markets.
WHY ANIMALS CAN’T PLAY SPORTS
To free ourselves from the philosophical baggage that has impeded our understanding of body and brain, we should begin by asking a very basic question, perhaps the most basic in all the neurosciences: why do we have a brain? Why do some living creatures, like animals, have a brain, while others, like plants, do not?
Daniel Wolpert, an engineer and neuroscientist at the University of Cambridge, provides an intriguing answer to this question when he tells the tale of a distant cousin of humans, a sea squirt called the tunicate. The tunicate is born with a small brain, called a cerebral ganglion, complete with an eyespot for sensing light, and an otolith, a primitive organ which senses gravity and permits the tunicate to orient itself horizontally or vertically. In its larval stage the tunicate swims freely about the sea searching for rich feeding grounds. When it finds a promising spot it cements itself, head-first, to the sea floor. It then proceeds to ingest its brain, using the nutrients to build its siphons and tunic-like body. Swaying gently in the ocean currents, filtering nutrients from passing water,
the tunicate lives out its days without the need or burden of a brain.
Fig. 2. The bluebell tunicate.
To Wolpert, and many like-minded scientists, the tunicate is sending us an important message from our evolutionary past, telling us that if you do not need to move, you do not need a brain. The tunicate, they say, informs us that the brain is fundamentally very practical, that its main role is not to engage in pure thought but to plan and execute physical movement. What is the point, they ask, of our sensations, our memories, our cognitive abilities, if these do not lead at some point to action, be it walking, or reaching, or swimming, or eating, or even writing? If we humans did not need to move then perhaps we too would prefer to ingest our brain, a metabolically expensive organ, consuming some 20 per cent of our daily energy. Scientists who believe the brain evolved primarily to control movement – Wolpert calls himself and his colleagues ‘motor chauvinists’ – argue that thought itself is best understood as planning; even higher forms of thought, such as philosophy, the epitome of disembodied speculation, proceed, they argue, by hijacking algorithms originally developed to help us plan movements. Our mental life, they argue, is inescapably embodied. Andy Clark, a philosopher from Edinburgh, has put this point nicely when he states that we have inherited ‘a mind on the hoof’.
To understand the brain, therefore, we need to understand movement. Yet that has turned out to be a lot harder than anyone imagined, harder in a sense than understanding the products of the intellect. We tend to believe that what belongs in the pantheon of human achievement are the books we have written, the theorems we have proved, the scientific discoveries we have made, and that our highest calling involves a turning away from the flesh, with its decay and temptation, and towards a life of the mind. But such an attitude often blinds us to the extraordinary beauty of human movement, and to its baffling mystery.