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Are hormones hurting the economy?

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Are hormones hurting the economy?

In these days of universal economic concern, pop culture abounds with zeitgeist probing pieces challenging the financial system. Cool theory of the week comes courtesy of the New York Times. Authored by Sheelah Kolhatkar, the piece harks back to an argument at Davos that goes like this: if Lehman Brothers had actually been Lehman Sisters, it would have survived.

Whilst arguments such as this can be easily dismissed as essentialist and pandering to ‘Freakonomics’ type headline grabbing tactics, there may be something to be said for a wider range of trading styles on the floor. And not just for the sake of gender equality laws.

This is backed up by neuroscientist Joe Herbert, who pointed out: “The banking crisis was caused by doing what no society ever allows, permitting young males to behave in an unregulated way.”
The New York Times article puts this so-called male risk-chasing behaviour down to biology. Under certain conditions- a room full of attractive women, a room full of pepped up traders, levels of testosterone, the hormone behind aggression and dominance, can soar. This can propel those under its heady influence to make ‘crazy’ decisions and drastic risks. In short: testosterone drowned the economy.
Unhampered by such hormonal hysteria, the argument goes, women were able to keep a much clearer head. John Coates, a senior research fellow in neuroscience and finance at the University of Cambridge, is of the opinion that if women made up 50% of the financial world, volatile scenarios such as bubble economies may be much less likely.
Evidence for this comes not only from America. Research on use of micro-finance loans by women in developing nations have shown that women were more likely to invest the capital into the community, in areas such as education and healthcare, highlighting the generally female tendency to favour long-term investments over riskier short term deals.
Another study from Stockholm University finds analogies between how men and women play chess and how they deal with financial risk.
According to one paper, chess is a trendy new way to study behavioural economics, owing to the fact that every move can be said to constitute “a well-defined problem environment, with a fixed number of identifiable moves.” The gist of research into 15,000 players was that women are two percentage points more likely to play it safe than men,
Whilst the key issues revolve around the ‘glass ceiling’ issue and alleged 80% performance-related pay gap, not to mention the increased expansion of the sex industry into city work culture, London has evidently has a long way to go in terms of equality.
Clearly, it is reductive to simply urge men to think like women, or vice versa. But, for a more self-regulatory financial world, perhaps taking a step back and striking more of a balance of behaviours on the trading floor would be a prudent first step.

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