The Hour Between Dog and Wolf: Risk-taking, Gut Feelings and the Biology of Boom and Bust. John Coates
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СКАЧАТЬ 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.

      

      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 СКАЧАТЬ