The Hour Between Dog and Wolf
Risk Taking, Gut Feelings and the Biology of Boom and Bust
By John Coates
About the book
Neuroscientist John Coates, once a Wall Street trader, argues that financial booms and busts have a biological basis. His own experiments found a feedback loop in which success raises testosterone and lowers men's fear of risk, above all in younger men, though not in women, while sharp losses raise cortisol and make people shy away from risk. Before turning to research at Cambridge, Coates headed a New York derivatives desk, where he watched traders turn exuberant when winning and timid when losing, a shift the title names. To show the physiology at work, he follows a group of fictional traders through a bubble and a crash.
Nassim Nicholas Taleb endorsed it, saying he found in it evidence of the convex reaction to stressors he had been looking for after writing about overcompensation.
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This book has 1 recommendation
Nassim Nicholas Taleb (Flaneur)
I read this book after completing my exposition of overcompensation, how a stressor or a random event causes an increase in strength, in excess of what is needed, like a redundancy. I was also looking for evidence of convex reaction to stressor, or the effect of a mathematical property called Jensen's inequality in domains and found it exposed here (in other words, why a combination low dose (most of the time) and high dose (rarely) beats medium dose all the time. The authors presents the evidence for the phenomenon in the following: 1) acute stressors cum recovery beat both absence of stressors and chronic ones (this includes thermal variations); 2) stressors make one stronger (post traumatic growth); 3) risk management is mediated by the deep structures in us, not rational decision-making; 4) winning causes an increase in strength (the latter are more complicated effects of convexity/Jensen's Inequality).
Great book. I ignored the connection to financial markets while reading it. But I learned that when under stress, one should seek the familiar.
Bravo!
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