The Hour Between Dog and Wolf

by John Coates

  As mentioned, women make up about 5 per cent of an average trading floor. But these numbers change dramatically when we leave the banks and visit their clients, the asset-management companies. Here we find a much higher percentage of women. The absolute numbers are not large, because asset managers employ much fewer risk-takers than banks; but at some of the big asset-management companies in the UK women make up as much as 60 per cent of the risk-takers. This fact is, I believe, crucial to understanding the differences in risk-taking between men and women. Asset management is risk-taking, so it is not the case that women do not take risks; it is just a different style of risk-taking from the high-frequency variety so prevalent at the banks. In asset management one can take time to analyse a security and then hold the resulting trade for days, weeks or years. So the difference between men’s and women’s risk-taking may be not so much the level of risk-aversion as it is the period of time over which they prefer to make their decisions.

  Perhaps men have dominated the trading floors of banks because most of the trading done on them has traditionally been of the high-frequency variety. Men love this quick decision-making, and the physical side of trading. But do trading floors today really need so many of these rapid-fire risk-takers? Banks certainly do need them; but with the advent of execution-only boxes of the sort discussed in Chapter 2, we are now in a position to disaggregate the various traits required of a risk-taker – a good call on the market, a healthy appetite for risk, and quick reactions – and let computers provide the quick execution. Increasingly, all that is required of risk-takers is their call on the market and their understanding of risk once they put on a trade; and there is no reason to believe men are better at this than women. Importantly, the financial world desperately needs more long-term, strategic thinking, and the data indicate that women excel at this. As banks, hedge funds, and asset-management companies assess their current needs and more data emerges on the performance of women risk-takers, the financial institutions will come, I believe, to hire more and more women.

  Besides letting the market take its natural course, there is a policy that could hasten the hiring of women. That is to alter the period of time over which a risk-taker’s performance is judged. To repeat a point made in the last chapter, the trouble in the financial world right now is that performance is measured over the short haul. Bonuses are declared yearly, and within this year there is a lot of pressure on traders to trade actively – floor managers do not like to see people sitting on their hands, even if it may be the right thing to do – and to show profits on a weekly basis. Perhaps this aggressive demand for short-term performance has prevented banks from discovering the high long-term returns of which women are capable. The solution to this problem is quite simply to judge women risk-takers – all risk-takers for that matter – over the long haul. Here again this goal could be served by calculating bonuses over the course of a full business cycle. Should we do that, we might find banks and funds not worrying too much about a slow period in a trader’s returns, but only about their returns over the cycle. The market would come to value the stability and high level of women’s long-term performance, and banks might naturally start to select more women traders. Affirmative action would not be needed.

  There is, however, another perspective, a troubling one, from which to view this and any other proposed solution to the problem of market instability. It has been suggested to me that we should not try to calm the markets, because bubbles, while troublesome, are a small price to pay for channelling men’s testosterone into non-violent activities. Andrew Sullivan, in an article mentioned in Chapter 1, has expressed a similar concern. Ruminating about the role of testosterone today, he worries that the real challenge facing us is not so much how to incorporate women more fully into society but how to stop men from seceding from it. A chilling thought. Keynes entertained somewhat the same concern, and concluded that capitalism, rather than any of the other economic systems on offer during the 1930s, was the preferred antidote to our violent urges, quipping that it is better to terrorise your chequebook than your neighbour. So maybe it is better to have testosterone vented in the markets than elsewhere.

  I do not think that follows. We tend to get extreme behaviour of the sort that gives testosterone a bad name when we isolate young males. This phenomenon can be observed in the animal world, and most vividly among elephants. In the absence of elders, young male elephants go into musth prematurely, a condition in which their testosterone levels surge 40 to 50 times above baseline, and then they run amok, killing other animals and trampling villages. In South Africa, park rangers have found a solution to the problem: they have brought in an elder male elephant, and his presence has calmed the rogues.

  This example from the animal world is admittedly more extreme than anything we find in human society, but it does dramatically illustrate the point I am making. There may be times when we want young males to be cut loose, perhaps during times of war. But when it comes to allocating the capital of society, the financial sector’s allotted goal, we probably do not want volatile behaviour. We want balanced judgement and stable asset prices, and we are more likely to get these if we have the whole village present – men and women, young and old.

  I like this policy, of altering the biology of the market by increasing the number of women and older men in it. It strikes me as eminently sensible, and my hunch is that it would work. To argue for it one need not claim that women and older men are better risk-takers than young men, just different. Difference in the markets means greater stability. There is, however, one point about which I have much more than a hunch, about which I am as certain as certain can be – that a financial community with a more even balance between men and women, young and old, could not possibly do any worse than the system we have now. For the one we have now created the credit crisis of 2007–09 and its ongoing aftershocks, and there is quite simply no worse outcome for a financial system.

  Lastly, this policy has some decent science behind it. It provides a good example of how biology can help us understand and regulate the financial markets, and it does so, moreover, in a manner that is not in the least bit threatening.

  A RETURN TO WHAT WE ONCE KNEW

  It is easy to be scared by science. Novels and movies regularly portray a future in which our individuality is threatened and our dignity crushed, and more often than not it is science, rather than politics or war, that has acted as midwife to this dystopian nightmare. We find a telling example in the film Gattaca. A beautifully-shot and underrated film, Gattaca grapples with our darkest fears of genetics turned against us. Set in the not-too-distant future, it portrays a society in which a person’s opportunities – their job, friends and spouse – are determined by their DNA. The main character, played by Ethan Hawke, wants the job – being an astronaut – and the girl, Uma Thurman, but does not have the right DNA, an ugly fact recorded indelibly on his identity card, as well as on every hair, fingernail and skin cell that drops off his body, ready to be collected if need be by security agents trying to verify his fitness. Similar visions of science ushering in an unwanted future can be found in tales of nuclear apocalypse, of lab-bred viruses escaping into an unsuspecting world, of computer networks rising to self-consciousness and deciding they just don’t like humans.

  Sometimes, though, scientific discoveries do not scare the pants off us. Sometimes they do not herald a terrifying new world, but merely reveal a tacit knowledge we have always possessed but have never been able to articulate. This tacit knowledge is shared between body and brain. Most of it, like homeostatic regulation, remains inaccessible to consciousness; some of it, like gut feelings, can be brought to the fringes of awareness; and some, like fatigue and stress, can be brought to full consciousness but are often misunderstood. We are in the strange position of creatures who on the one hand generate bodily messages intended to maintain health and happiness or prepare us for movement, but on the other sometimes do not know, or rather do not consciously know, what they mean.
Where body and pre-conscious brain meet conscious brain we resemble in our split being two peoples meeting on their mutual border and each trying to communicate through a language the other only dimly comprehends. Fortunately, we are now learning to decipher these signals. Through biology we are figuring out why we are receiving these messages and how to answer them.

  There is another way in which scientific discoveries can reassure us: they can remind us of a knowledge we once consciously possessed – and verbally discussed – but have forgotten. For there was a time when we candidly recognised that we are biological beings, and we thought long and hard about what this simple fact meant for ethics, politics and economics. The most notable person to do so was, as mentioned, Aristotle. In his work we find a blueprint for conceiving of life in a way that fully appreciates the role our body plays in our thinking, how it is responsible for both our agonies and our ecstasies, and how its claims must be heard at the bargaining table of policy. That is why I say that physiology and neuroscience are today returning us to an understanding of the human condition we once had, but lost, Aristotle’s way of thinking being buried for millennia under layers of Platonic and Cartesian rationalism.

  Aristotle created, more or less on his own, the template of the Western mind. Traces of his influence linger in every subject. Any student, no matter what department he or she studies in, will probably read something by Aristotle in their first year at university, even if it is just a paragraph or two: political science students might read the Politics, law students the Ethics, philosophers the Metaphysics, logicians the Analytics and the Categories, biologists the History of Animals, physicists and chemists a quotation or two from the Physics, and literature students – as well as aspiring Hollywood scriptwriters – the Poetics, in which Aristotle codified the structure of Western narrative. Indeed, it could be argued that within universities the departmental divisions themselves owe their very existence to the way Aristotle carved up our knowledge into its various branches, based on their subject matter and method of study.

  Despite his pervasive influence, Aristotle’s views on one point have been all but lost to posterity – those on mind and body. When we read in Plato that within our decaying body there burns a spark of pure reason, we are reading something so familiar that we barely take note. But when we read in Aristotle a sentence such as, ‘ If the eye were an animal, its soul would be seeing,’ we naturally ask, what on earth does that mean? Our surprise indicates just how far we have drifted in the intervening centuries from Aristotle’s way of looking at mind and body. Because for Aristotle, the two could not be separated.

  On this point Aristotle’s thinking is at once closer to our everyday experience of how our bodies affect our thoughts, and to cutting-edge research in neuroscience. He believed that mind is of necessity embodied, that if we did not have a body we would not, quite simply, have much to think about. Yet it is Plato’s ideal of thought uncluttered by physical interference that has stood out over the centuries as the one to follow, a beacon of rationality as pure as the bleached white columns of a Greek temple. And in some ways Plato’s appeal is not surprising. His ideas are clean, ordered, crystalline. In Aristotle we find none of this heavenly order. In fact, when turning from Plato to Aristotle we are often shocked at Aristotle’s realism. We step from the bracing heights of Olympus into a marketplace seething with activity and sweat and emotion. Armed with a biologist’s skill at observation, Aristotle set about studying all the messy details of our embodied existence, the claims made on us by desire, greed, ambition, anger, hate, as well as the pull to more noble forms of thought and behaviour, such as bravery, altruism, love and the exercise of reason. In Aristotle we find a candid and loving appreciation of the warped timber of humanity. We may thrill to the ethereal beauty of Plato’s vision, but we feel at home with Aristotle.

  There is another way in which the idealism–realism split between Plato and Aristotle showed itself, and that was in their political thought. Plato’s Republic has inspired countless philosophers and political leaders over the centuries, yet his ideas of the good life tended to force people into roles for which they were ill-suited. Unearthly ideals, we have learned at great cost, too easily lead to social and political disasters. Equally, otherworldly ideals of economic rationality can too easily lead to the design of a marketplace fatally prone to financial crises.

  Aristotle’s realism, on the other hand, led him to recommend political institutions that accommodate actual human beings rather than idealised ones. Aristotle looked at the ways we are built, our biological details, and then judged policies and political institutions according to how well they suited our nature, how effectively they brought out the best in us and channelled what was dangerous in harmless directions. Today, through advances in neuroscience and physiology, we are rediscovering the unity of brain and body that Aristotle already understood. We should, I believe, take the next step and follow his template for conceiving a social science. With our now highly advanced understanding of human biology we are in a position to create a unified policy science, from molecule to market. If we were to do so we would find, as Aristotle did, that biology can provide us with the behavioural insights we need.

  We would find something more. We would find economics beginning to merge with other subjects, such as medicine, the study of bodily and psychiatric pathologies, and with epidemiology, the study of population-wide trends in illness. The nineteenth-century German physiologist Rudolf Virchow once remarked that politics is medicine writ large, and today we could extend his dictum to economics. If the walls separating brain from body came down, so too would many barriers between subjects. With the help of human biology we could even bridge the abyss of misunderstanding that has separated what the scientist and novelist C.P. Snow once called the ‘ two cultures’ of science and the humanities.

  On a personal level, the blending of biology into our self-understanding could lead to more of Aristotle’s recognition moments, and help us develop a much-needed skill at interpreting and controlling our exuberance, fatigue, anxiety and stress. Written on the Temple of Delphi was the maxim, Know Thyself!, and today that increasingly means know your biochemistry. Doing so turns out not to be a dehumanising experience at all. It is a liberating one.

  ACKNOWLEDGEMENTS

  Many friends and colleagues have helped over the years, with both research and this book. For regularly challenging my understanding of philosophy, especially German, and for providing such inspiring examples of what the plain style is capable of, I express my admiration and thanks to Michael Nedo and John Mighton. For constant support during my research, thanks go to Ed Cass, Gavin Gobby, Casimir Wierzynski, and especially to Manny Roman, who tried to solve every problem I moaned about.

  Further thanks go to Gavin Poolman, John Karabelas, Vic Rao, Wayne Felson, Bill Broeksmit, Scott Drawer, Stan Lazic, Josh Holden, Sarah Barton, Kevin Doyle, Geoff Meeks, Geoff Harcourt, Jean-François Methot, Mike O’Brien, Mark Codd, Ollie Jones, Gillian Moore, Ben Hardy and Brian Pedersen.

  I have gratefully received financial support for ongoing research from the Economic and Social Research Council of the UK, and the Foundation for Management Education. Mike Jones of the FME has been especially supportive.

  I have asked many scientists to read sections of the book dealing with their own research: Daniel Wolpert on motor circuits; Greg Davis on visual systems; Steven Pinker on robotics; David Owen on hubris syndrome; Bud Craig on interoception; Michael Gershon on the enteric nervous system; Stephen Porges on the vagus nerve; Paul Fletcher on noradrenalin; Mark Gurnell on testosterone; Zoltan Saryai on cortisol; Richard Dienstbier on toughness; and Bruce McEwen on steroids and the brain, as well as the history of research at Rockefeller. Ashish Ranpura has read the entire manuscript. I wish to thank all these people for sharing their expertise. I have accepted all their corrections. However, many of the sections dealing with their research have been subsequently rearranged, and if in the process any mistakes have crept in, they are of
course my own fault.

  I would like to express my deep gratitude to a few of my close colleagues, for being such a joy to work with and for demonstrating to me the rigours of science: Linda Wilbrecht, Lionel Page and Mark Gurnell. And to Sally Coates, for her unfailing ear and magical turn of phrase.

  Lastly, thanks to Georgia Garrett, Donald Winchester and Natasha Fairweather at A.P. Watt, and to my editors, Anne Collins, Louise Dennys, Nick Pearson, Robert Lacey, Eamon Dolan, Emily Graff and Scott Moyers, for assistance well beyond the call of duty. And mostly to my wife, Sarah Marangoni, on whose classical education and sure judgement I have come to rely.

  JOHN COATES

  Cambridge, February 2012

  NOTES

  INTRODUCTION

  1 Far graver crises cause less keen emotion Winston Churchill (1930) My Early Life. London: Oldhams Press. p.207.

  2 every voice in the stadium, see every blade of grass Zinedine Zidane, the great French footballer, is worth quoting: ‘When you are immersed in the game, you don’t really hear the crowd. You can almost decide for yourself what you want to hear. You are never alone. I can hear … someone shift around in their chair. I can hear … someone coughing. I can hear someone whisper in the ear of the person next to them. I can imagine … that I can hear the ticking of a watch.’ Zidane: A 21st Century Portrait (2006) directed by Douglas Gordon, Philippe Parreno.