ESSAY JUDITH H. DOBRZYNSKI

WILL THE DOWN market never end- For months, policy makers around the world have tried bailouts, interest rate cuts, anything they could think of, really, to bring global markets out of their deepening depression. Once in a while, the markets do move up - only to fall again. Nothing seems to work for long.
Perhaps there’s a reason that everyone has overlooked: hormones.
If a research paper published earlier this year is correct, traders have become prisoners of their endocrine systems - testosterone, the elixir of male aggressiveness, during a bull market; cortisol, a steroid that helps the body deal with stress, when fear takes over.
The study suggests that raging hormones might explain why the men who rule the global markets send them up when they’re winning, and down when they panic.
One investment strategist intuitively grasped the situation when he recently told The New York Times: “Normally markets are driven by fear and greed. Now it’s fear and fear.” In other words, instead of a rhythm of testosterone alternating with cortisol, it’s been cortisol and more cortisol for weeks. Actually there was a step in between - greed and greed, the bubble period. That’s when traders were making a lot of money, which made them pump out extra testosterone, grow overconfident and overcompetitive, and take on more and more risks that eventually went bust.
Now, the lingering presence of cortisol makes them irrationally fearful, negative and risk averse.
John M. Coates, a former trader who is now a senior research fellow in neuroscience and finance at the University of Cambridge, and a colleague, Joseph Herbert, laid it all out in the study, published in the Proceedings of the National Academy of Sciences. Measuring steroid levels of traders in the City of London, they demonstrated that successful traders were heavily influenced during market booms by a positive feedback loop fueled by increased levels of testosterone.
It’s akin, Dr. Coates says, to the “winner’s effect” among male athletes, in which successive victories push testosterone levels higher and higher, giving the winner an advantage - until he begins to misjudge risk and take stupid chances. “Testosterone doesn’t create bubbles, but it exaggerates them,” Dr. Coates said. “It’s possible that bubbles are a male phenomenon.”
Likewise, when markets tumble, traders are stressed out by the uncertainty and volatility and produce a lot of cortisol; they fall into a negative feedback loop that turns them into emotional fear-mongers, rather than analytical thinkers. So they’re now prolonging and deepening the market plunge, and dragging down the economy.
With markets swinging scarily from one day to the next, traders have become bundles of dueling hormones.
Though Dr. Coates hasn’t studied it - yet - he said “it’s possible” that testosterone-fueled competitiveness may even have driven investment bankers to be ever more creative in inventing the risky, complex securities designed to deliver more leverage and better returns.
They got so creative that few people understood their risks.
But Jonathan D. Cohen, director of the neuroscience program at Princeton University in New Jersey, hesitated to agree. “This is intriguing, but correlation is not causation,” he said. “That’s the first thing we learn in science.”
Still, Dr. Bruce McEwen, head of the neuroendocrinology lab of Rockefeller University in New York, said “it’s kind of exciting.” “Who knows,” he asked, “what other hormones are doing as well? There’s a lot we don’t know, because people don’t think about hormones in this context, but this is an aspect we have to consider. All bets are off.”
Dr. McEwen said it was too early to make recommendations to policy makers.
Not so Dr. Coates: The question reminded him of a headline in The Financial Times: “Icelandic Women to Clean Up Male Mess.” The article reported that Iceland had turned to two women to lead banks nationalized during the country’s brush with bankruptcy.
Women, Dr. Coates explained, have only about 10 percent of the testosterone men have; their judgment is not confused by it. He said he also suspected that women were less likely to produce excess cortisol.
So he advised getting “more women and older men on trading floors.”