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Wednesday: {{snort!}} “Testosterone Poisoning is REAL”

Julius Caesar crosses the Rubicon and risks it all

Julius Caesar crosses the Rubicon and risks it all

Check out this must read from James Kwak at Baseline Scenario on risky behavior in the banking industry.  He cites another post at VoxEU by Anne Siebert entitled “Why did the bankers behave so badly?”.   They behaved badly because they were overconfident.  This overconfidence was brought on by three things: confirmation bias, a steroid feedback loop and bonus compensation strategies.  In other words, we have a repeat of The Smartest Guys in the Room that brought down Enron.

The steroid feedback loop hypothesis is fascinating.  I’ve referred to it as testosterone poisoning.  We saw it up close and personal on some of our former favorite websites like DailyKos during the election.  Aw, Jeez, here come the guys again doth protesting too much.  “How dare you insult our gender, you insensitive, brazen hussy!  You discriminate against me and my brethren.  Help!  Help! I’m being oppressed!”  Give it a rest, guys.  This phenomenon has legs.  Some geeky types have been doing research on the subject:

There is a substantial economics literature on the effect of gender on attitudes toward risk and most of it appears to support the idea that men are less risk averse than women in their financial decision making.1 There is also a sizable literature documenting that men tend to be more overconfident than women. Barber and Odean (2001) find that men are substantially more overconfident than women in financial markets. In general, overconfidence is not found to be related to ability (see Lundeberg et al (1994)) and that success is more likely to increase overconfidence in men than in women (see, for example, Beyer (1990)). Thus, if confidence helps produce successful outcomes, there is more likely to be strong feedback loop in confidence in men than in women.

In a fascinating and innovative study, Coates and Herbert (2008) advance the notion that steroid feedback loops may help explain why male bankers behave irrationally when caught up in bubbles. These authors took samples of testosterone levels of 17 male traders on a typical London trading floor (which had 260 traders, only four of whom were female). They found that testosterone was significantly higher on days when traders made more than their daily one-month average profit and that higher levels of testosterone also led to greater profitability – presumably because of greater confidence and risk taking. The authors hypothesise that if raised testosterone were to persist for several weeks the elevated appetite for risk taking might have important behavioural consequences and that there might be cognitive implications as well; testosterone, they say, has receptors throughout the areas of the brain that neuro-economic research has identified as contributing to irrational financial decisions.

A couple of interesting things jump out at me in the above paragraphs.  First, overconfidence is not related to ability.  That is, assertions that one is God’s gift to the financial world are not born out by any qualitative measurment of performance.  So, all you rich brokers and financiers who are whining that you lost your bonus or job and can’t afford the summer rental in the Hamptons this year to support the new servant class that you refuse to pay a living wage probably didn’t earn it in the first place.

The other thing that strikes me as interesting is that we don’t really know what would happen if we had  more women in the financial industry.  It is mere specualation that they wouldn’t fall prey to the same behaviors.  It isn’t clear to me that there isn’t as much nurture as nature going on in excessive risk taking.  But I think we can say that there is a very high barrier for admission to the party for women.  Four females out of 260 traders on a typical London trading floor is pretty pathetic.  If it is true that the steroid feedback loop is responsible in part for risky behavior, then breaking up the critical mass of men with additional women would be a worthwhile experiment.  But how do you get women in there?  Are women discouraged from pursuing these kinds of jobs in the first place?  Let’s assume that there is a “nurture” component to the absence of women in the financial industry and unpack some real world scenarios.

First up, a woman applying for a particular job on the trading floor is responsible and takes her fiduciary responsibility seriously.  In the atmosphere of testosterone poisoning, she would be seen as weak and not pulling her weight sufficiently.  Her lack of risk taking behavior would not be compensated nor praised.  Even women’s egos need stroking.  Why would a woman who is responsible want to subject herself to this?  Good question.  We should ask Sheila Bair, Elizabeth Warren and Hillary Clinton.  All three of these women have bucked the system and have advocated a bottom up approach to solving the financial crisis.  All three have met tremendous resistance from the status quo and the new status quo of the incoming administration.

Now let us consider a woman who has the temprament to compete on the same level playing field as a man.  This woman would not just need to be smart and ambitious, she would also need to possess the kind of moxie to seek forgiveness rather than permission.  She has to possess the kind of overconfidence that make people believe her.  In the real world, these kind of women don’t have a prayer.  They are labeled pushy, troublemakers, “not team players”.   We reward women for being team players, obedient and pleasant, not for being aggressive risk takers.

So, adding women to the mix is unlikely to be of any great assistance because the environment of the financial industry at the present time is incompatible with preferred gender behaviors.  There are a couple solutions to this problem.  We could either allow women to exercise these facets of their personalities so that they can compete with men in a dog eat dog world.  I think we should do this anyway because it’s time that smart ambitious women were encouraged to take risks.   But this wouldn’t solve the immediate problem of excessive risk taking in the financial sector.

The other solution is to punish excessive risk taking behavior and testosterone poisoning to begin with.  That is, hold people accountable for excessive risk taking.  As Paul Krugman says, make banking boring again.  It has been done before.  As Elizabeth Warren points out, the boom-bust cycle that plagued the American economy every 10-15 years since the creation of the republic didn’t happen in the 50 years that followed the Great Depression.  That’s because we had such a great shock to the system that we knew that curbing these behaviors was the only way to make sure the testosterone poisoned didn’t bankrupt us again.

The problem is that few people alive now remember what the Great Depression was like and the present shock to our system may not be as acutely debilitating, requiring clear, immediate steps to save the system.  Instead, it’s going to be like chronic back pain.   We’ll still have to work through it but the pain will never completely go away.  We’ll be expected to muddle through it, debating whether an operation or bedrest will make it end.  Meanwhile, the testosterone poisoned will go their merry way, wrecking havoc.

Podcast of the day: Mike Duncan has a terrific podcast on the History of Rome.  History does indeed repeat itself.  Oligarchs apparently have behaved the same way for a long time.  And unfortunately for all of us, there are only a few harsh remedies for getting rid of them.  Check out Insert Well Known Idiom Here.


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45 Responses

  1. welcome back RD ~ excellent post per usual!

  2. Yeah, well, I think I am caught up on my sleep now but my shin splints are mending slowly.

  3. missed you, Riverdaughter…

    I’m going to be thinking about overconfidence not related to ability all day…

    verrrrry interesting!

  4. YIPPEEEEEEEEEE!!! (Snoopy dance of joy). RD’s back from hiatus.

  5. Nice to see you back RD and in form!!!!

    ( Shin Splints….?????)

  6. Welcome back Riverdaughter..

    You said:

    The problem is that few people alive now remember what the Great Depression was like …

    I usually assign an oral history project to my students. I can recall one student who wanted to do her project on her grandmother who had lived through the Great Depression. Just before the interview, her grandmother passed away. That history was lost and had to be reconstructed by memory from the stories my student was told.

    If any of you have an elderly relative, I urge you to take a tape recorder and complete an oral history of their life. There are many resources on the web to guide you along.

    In July I am interviewing a 94 year old woman who was an Iowa farmer’s wife. I can’t wait.

    • Sounds like that’s a project that should be done sooner rather than later.

    • My parents both lived throught the depression and the dust bowl. They have told me lots of stories, and we have some things on tape. We need to do more though.

    • A friend of mine here in Oz works for ABC broadcasting oral histories of the indiginous people here. Fascinating stuff and I echo what you say about people finding out their own relatives’ oral histories.

    • Yes, I wanted to do a little oral history with a 90 year old man here.
      He saw so much during the war. He drove an ambulance in Greece, was captured and held first in Yugoslavia, where he worked in a shirt factory together with the girlfriends of Tito’s partisans, then transferred to Germany.
      His stories were wonderful, such as finding a train wagon with sacks of brown sugar on it, raiding it and hiding the sacks in the wood-all under the watchful eye of the German sentries.

      But I left it too late- his memory went last year. 😦

  7. So good to see you back, RD.

    I’m listening to the podcast on the history of Rome!

  8. Excellent post. And great discussion of testosterone poisoning. I think the long term answer to that in not only banking but in similar risk taking in business start up efforts (where 90% failure is accepted) is to simply have a better mix of men and women. I’ve been in lots of business start up ventures and I’ve noticed when there is a good mix of men and women the outcome is strikingly better than when it’s very male dominated. Shhh, don’t let the secret out or venture people will catch on and figure out how to make much more money.

  9. There is also some literature out there documenting how women deeply dislike, aka, ‘hate’, making mistakes. The investigators speculated that a genetic advantage may have accrued to early women who chose wisely in matters of mating but paid a high price for attraction to a poor provider. So beingt “right” ,i.e., not overconfident, mattered in order to raise children who were well fed and protected from predators.

    Cerainly I have been struck by the number of women whistle blowers and regulators who have had the courage to buck the system and endure loss of advancement to ‘do the right thing’ , from Enron, 9/11, and military contracts for Iraq right to the present debacle where Elizabeth Warren and Sheila Bair have been sane voices in the wilderness.

    These examples certainly suggest gender matters, as most women in research and academia have long been aware. At one point years ago several women colleagues and I looked into the production of bright red dangly P***s earrings to help us all make up for our lack of the “overconfidence gene”. Clearly, that was what was required for us to get out ideas accepted.

    • Women hate making mistakes – Men hate having anyone notice they made a mistake.

      Men (in general – not being specific to any one man) don’t seem to mind the mistake, but they do mind having to admit it, make amends for it or otherwise be held resposible for the mistake. Sometimes to the point that a small problem will grow into a large problem while the men hope nobody notices.

      Women on the other hand, will point out their own mistakes. I think the idea of women disliking making mistakes might have to do with accountability or responsibility for the mistake. That said, whistleblowers would feel responisble if they knew about a problem but didn’t say anything.

  10. RD – And I went on record yesterday defending you from false claims of “misandry.” 🙂 Kidding.

    Testosterone poisoning is at least as plausible as PMS.

    I wonder how “mixed gender” teams would fair in the trading world. My guess is that men and women have differnt strengths and weaknesses and that we are strongr together than apart.

    And while we are praising courageous female whistle blowers don’t forget Colleen Rowley.

  11. It’s wonderful to have you back RD. And such a meaty post too! Take care of those shin splints!

  12. A very fancy post, lotsa science, but it isn’t the same age old male game of “my dick is bigger than yours”? Please pardon my crassness, but this post underscores why we need a woman as president and more women in elected office– men do not behave nearly as badly in the presence of women as they do with other men about.

  13. Yeaaaa RD is back! It’s just not the same around here without you… 🙂

  14. {{{{RD}}}} – missed you – so glad you’re back – Great post!!! 😀

  15. Whew! You’re BACK! Yay! Great one…
    ps: I wonder if all that pushing of Viagra has anything to do with this?

    Hmmm…..

    hugs RD & Co.
    Well I pop open the machine and the news is that now the pension funds aren’t protected. Great. What a move. What an Enron.

    http://www.reuters.com/article/domesticNews/idUSTRE54J47F20090520

    What a topper this am.

    Ugh.

  16. It doesn’t matter if it is true or not that having more women in the financial industry would have prevented the economic crisis. It also does not matter whether they too would fall prey to some of the same behaviours. The fact is right now lots of people seem to believe it and this is having a great effect on women seeking power. This belief that women would be better has led to Iceland and Lituania electing their first women presidents. Kuwait had four women elected to parliament.

  17. Excess testosterone is not poisonous but it is the cause of male pattern baldness.

    The side-effects of too much testosterone can be fatal, especially when mixed with alcohol.

    Death is usually immediately preceded by some “last words” like “Oh yeah? You think you can whip my ass?” or a simple “Watch this”

    If men were a newly discovered species we’d be kept in cages at the zoo.

    • Cages in the zoo? I wouldn’t go that far…..

    • Actually, I think it is nurture, not nature. Testosterone probably plays the same role in women. We’re just not supposed to indulge.

  18. Female lawyers fighting sexism

    Patricia McLeod bumped up against the invisible wall between female and male lawyers as a young articling student at a Vancouver law firm.

    Male students were more frequently invited to football games by the firm’s partners, most of whom were men. More frustrating, when the men played on the company hockey team “the guys would get passed files in the locker-room,” says McLeod. Rubbing shoulders with partners and getting as many billable hours as possible could mean the difference between being kept on at the end of the year or not, she explains.

    But when women at the firm decided to start holding get togethers of their own, “there was a huge objection to our ‘hen parties,'” says the 40-year-old, now a staff lawyer with AltaLink, a power transmission company based in Calgary.

    “We were told we should join the hockey team.”

    Experiences like McLeod’s are part of why women are leaving the profession in droves, say the founders of a new mentoring program for female lawyers. The Lilith Law Professional Development and Mentoring program — which kicked off in Calgary recently and is the first of its kind in Canada — is a small step toward stemming the tide of attrition.
    ——–

    She and two other seasoned colleagues — Valerie Prather, a partner with Bennett Jones law firm and Ronnalee McMahon, a mentoring expert with Action Circle Consulting — decided it was time to help younger female lawyers learn to navigate what Blocksom calls “the systemic barriers against women in the profession.”

    Given that only 16 per cent of senior lawyers in Canada are female, one of the biggest challenges for women working their way up is not seeing role models who look like them or who understand what they’re experiencing. Women mentoring women is seen as one solution.
    ——

    http://www.thestarphoenix.com/News/Female+lawyers+fighting+sexism/1602605/story.html

  19. I am in moderation

  20. PUMA Princess videos such as “PUMAs Have Awakened” and “Leave The Memories of Hillary Alone” have been moved to a new channel. If you had favorited any vids check here to re-favorite. Thanks. http://www.youtube.com/PUMAPRINCESSARCHIVES

  21. (((hugs)))R.D. we missed you..get better quick hear….

  22. Testosterone Poisoning IS REAL — yes it is guys.

    Animal behavior researchers have been studying testosterone poisoning in non human species for years. For instance at one conference a paper was presented on male roosters — and Testosterone Poisoning.

    In mice for instance the hyper male mouse is outside the norm and is generally killed by the “normal” male mice.

    There is also research on male/female styles of conversation and interacting in groups — males tend to egg each other on and are not as cooperative as females in a group setting.

    As RD mentioned we watched the males gone bad at the Orange stain as their hatred of ANYONE female was on display for the world to see. They were acting like little boys in a tree house — keeping the creepy girls out of their world.

    So fine — the boyz gone bad — got to keep the world in the hands of males only — and things have not changed — the leadership is not kinder or more enlightened — Health care — 0zero’s crowd doesn’t give a damn. We only need to read the Confluence Daily read to see that it is a same old, same old political world.

    What sort of females would stay in a kos world — where they are not wanted and hated and despised by the cheeto consuming freeks who inhabit the place??

    • WOW — did Spammy get “fixed” — generally my hyper rants get stuck in Moderation.

      • Spammy must be having lunch at other sites. Don’t worry, he’ll be back to gobble up our posts indiscriminately.

  23. I think this is one reason so many men like to smoke pot, at least in my observation it’s a lot more men than women. It lowers testosterone and they often say that they find it calming.

  24. I have no problem with you bashing men that deserve bashing for their sexism. But rather, you lump all of us into a stereotype based upon gender. And that is sexism whether you admit to it or not.

    Lately you have become the female equivalent of Keith Olbermann except that in some respects you are worse because you attempt to excuse your behavior as if it is justified.

    If Hillary Clinton was such a great leader she would have remained in the Senate where she could have helped craft an intelligent plan to get us out of this current financial mess. Instead she chose to screw over her followers and become a lap dog for The One. At present she has ZERO power to change a damned thing. Some heroine.

    • When 0bots respond — gee that means RD hit a nerve —

      GOOD!

      • Obot? You are truly delusional.

        • It’s an easy mistake to make, because you have the same obsessive cluelessness.

          I don’t know why you have a hair up your ass about RD but repeating the same wrong assumption over and over will not make it true.

          Factual observations about gender are not sexist. Insulting the blog owner OTOH, is impolite and shortsighted.

          WordPress blogs are free. I encourage you to start your own and share your pearls of wisdom with the world.

          Happy trails!

    • Oh for god’s sake. What could she have done in the senate, fetched warm towels for the boys? Written up her own bills and stood on the Capitol steps trying to interest passersby? Maybe you slept through October, but she had a plan, and she was ignored and told to shut up. If you can find a way to “lead” a bunch of clueless phonies who only care about photo ops and patrolling the clubhouse to keep out girls and could give a $&@” about the citizens of this country, you should run, I’m sure the other Senators will be eating out of your hand.

      • well said

      • If Hill could have gotten anything done in the Senate, she would have stayed ….but Ted made it obvious she would not be able to do anything…and really the upper crust also made it obvious not much of worth( for the average person ) will be allowed come out of congress in any case . The plan was to was to sabotaged Hillary’s campaign from within ( thanks Patti) and Hillary was to become political road kill like the other Dems. But she had a surprise for them….and how Hillary is were she is, should be a case study for those pols who wish to survive the age of Obama ….not many will

    • I don’t see any male bashing in the post.

  25. Kudos RD!

    I knew it, I knew it. I have spent all my working life in male dominated industries and all this research just proves my empirical observation. In every single job interview I attended (back in the home country ) I was asked how I expected to manage my career and family- my husband was NEVER once asked this. I have seen and been a victim of the locker room mentality – been excluded, marginalized at every turn.

    Don’t let the obots like the one above get to you.Poor babies – they bashed women at every chance they got – but one post about ’em and they begin boo-hooing 🙂

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