Saturday, January 28, 2012
The Role of "Cowboy Genes" in the Wall Street Fiasco of 2008
http://www.plosone.org/article/info:doi/10.1371/journal.pone.0030844
Discussion
Our primary finding is that two genetic alleles that affect DA are associated with success at trading stocks on Wall Street. We showed that alleles of COMT and DRD4P were predominant in traders compared to controls, and we also demonstrated that a combination of these alleles were associated with being a trader. Both COMT and DRD4P affect the brain's synaptic levels of dopamine. Several neuroeconomics studies of financial decisions have shown that activity in the dopaminergic nucleus accumbens predicts risk-taking [18]. It is possible that the successful traders in our sample who had genes associated with moderate synaptic dopamine may be predisposed to take an appropriate level of risk, but not too much, thereby contributing to their success. This was evidenced by their reduced reports of trading in volatile markets.
Using years on Wall Street as a measure of success, we found a positive correlation between success as a trader and a combination of alleles that are associated with intermediate levels of synaptic DA. We did not find that traders were more likely to carry the 7R variant of the DRD4e3 VNTR, an allele associated with risk-taking in two laboratory studies. Our results suggest that successful traders in our sample weigh risk and reward, rather than taking excessive risks. This was born out in the personalities of our sample of traders. We found that they were good at integrating disparate pieces of information, eschewed trading in volatile markets, and did not view the world as threatening their survival. These findings align with previous evidence suggesting that more experienced traders may respond in a less emotional way than those with less experience [10]. Nevertheless, other studies of professional traders have found that they are susceptible to trading biases [70]–[72].
We also examined two other genetic targets that affect DA levels and personality traits: MAO-A and SERT. We found no significant difference in the frequency of MAO-A or SERT alleles in traders compared to controls. This is potentially problematic, given that other studies have linked SERT and MAO-A to financial risk-taking tendencies; however, these results have been inconsistent [51], [56], [57].
It is important to note that our observations come from a relatively small sample. High income individuals recruited at work, such as the Wall Street traders, are difficult to access for data collection, which is the reason for the small sample at hand. It is therefore important that the results reported here are replicated. Additionally, our sample of traders may not include some of the most successful professionals who have the opportunity to leave the types of major companies from which we drew our data for early retirement or to begin their own company. We opted to define successful trading by longevity because this information could be reliably collected and because this is a measure also used in previous research [12]; however, other definitions of success may be considered more informative and should be examined in the future.
Our findings can contribute to discussions of changes in the regulation of finance professionals and asset markets in the wake of the 2008 recession. Our results suggest that using a history of risk-taking and competitive behaviors when hiring traders could be a mistake, though this is often done [73]. Having too little or too much risk-aversion is not associated with success by those in our sample; rather taking a balanced level of risk appears to be optimal. Further, our findings indicate the importance of training the dopamine system to accurately assess risk and reward in the context of trading. The balancing of risk and reward is essential to successful trading, but trading on another's behalf may skew the way risk is assessed [74]. Recent research from our lab has shown that without training the dopamine system, losses are accentuated even when trading for one's own account [75]. Lastly, our findings indicate that hiring more female traders may improve investment company returns. Nonprofessional female investors tend to be more risk-averse, trade less, and earn higher returns [76]–[78].
So, what makes a professional trader successful? Combining the personality analyses and genetic findings from the present study, reveals that our sample of traders are analytical, integrative, and can delay gratification. They have a genetic profile associated with balanced levels of dopamine, and also linked to moderate but not high risk-taking behavior. Thus, successful traders do not appear to take extraordinary risks and also appear to take a longer-term perspective. Our analyses indicate that these traits may have a genetic predisposition.
Tuesday, January 24, 2012
Saturday, January 21, 2012
Does emotional self-deception deplete mental energy?
The Two Systems of Cognitive Processes
Delanceyplace on January 16, 2012, 10:00 AM
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In today's excerpt – thanks to the work of Daniel Kahneman and others, we now increasingly view our cognitive processes as being divided into two systems. System 1 produces the fast, intuitive reactions and instantaneous decisions that govern most of our lives. System 2 is the deliberate type of thinking involved in focus, deliberation, reasoning or analysis – such as calculating a complex math problem, exercising self-control, or performing a demanding physical task.
System 2 activities - cognitive, emotional, or physical - draw at least partly on a shared pool of mental energy. Studies consistently show that when the brain is occupied with one type of System 2 thinking, it interferes with any other type of System 2 thinking you need to perform at the same time. And performing one type of System 2 thinking makes us less able to perform a subsequent System 2 activity in the period immediately afterward – even if one is physical and the other is cognitive or emotional. Furthermore, when the mind is actively focused on a System 2 activity, it results in System 1 having greater influence over our behavior:
"It is now a well-established proposition that both self-control and cognitive effort are forms of mental work. Several psychological studies have shown that people who are simultaneously challenged by a demanding cognitive task and by a temptation are more likely to yield to the temptation. Imagine that you are asked to retain a list of seven digits for a minute or two. You are told that remembering the digits is your top priority. While your attention is focused on the digits, you are offered a choice between two desserts: a sinful chocolate cake and a virtuous fruit salad. The evidence suggests that you would be more likely to select the tempting chocolate cake when your mind is loaded with digits. System 1 has more influence on behavior when System 2 is busy, and it has a sweet tooth.
"People who are cognitively busy are also more likely to make selfish choices, use sexist language, and make superficial judgments in social situations. Memorizing and repeating digits loosens the hold of System 2 on behavior, but of course cognitive load is not the only cause of weakened self-control. A few drinks have the same effect, as does a sleepless night. The self-control of morning people is impaired at night; the reverse is true of night people. Too much concern about how well one is doing in a task sometimes disrupts performance by loading short-term memory with pointless anxious thoughts. The conclusion is straightforward: self-control requires attention and effort. Another way of saying this is that controlling thoughts and behaviors is one of the tasks that System 2 performs.
"A series of surprising experiments by the psychologist Roy Baumeister and his colleagues has shown conclusively that all variants of voluntary effort - cognitive, emotional, or physical - draw at least partly on a shared pool of mental energy. Their experiments involve successive rather than simultaneous tasks.
"Baumeister's group has repeatedly found that an effort of will or self-control is tiring; if you have had to force yourself to do something, you are less willing or less able to exert self-control when the next challenge comes around. The phenomenon has been named ego depletion. In a typical demonstration, participants who are instructed to stifle their emotional reaction to an emotionally charged film will later perform poorly on a test of physical stamina - how long they can maintain a strong grip on a dynamometer in spite of increasing discomfort. The emotional effort in the first phase of the experiment reduces the ability to withstand the pain of sustained muscle contraction, and ego-depleted people therefore succumb more quickly to the urge to quit. In another experiment, people are first depleted by a task in which they eat virtuous foods such as radishes and celery while resisting the temptation to indulge in chocolate and rich cookies. Later, these people will give up earlier than normal when faced with a difficult cognitive task."
Author: Daniel Kahneman Title: Thinking Fast and Slow Publisher: Farrar, Straus, and GirouxDate: Copyright 2011 by Daniel Kahneman Pages: 41-42
Tags: Cognitive Processes, Temptation
Delanceyplace on January 16, 2012, 10:00 AM
inShare
16
In today's excerpt – thanks to the work of Daniel Kahneman and others, we now increasingly view our cognitive processes as being divided into two systems. System 1 produces the fast, intuitive reactions and instantaneous decisions that govern most of our lives. System 2 is the deliberate type of thinking involved in focus, deliberation, reasoning or analysis – such as calculating a complex math problem, exercising self-control, or performing a demanding physical task.
System 2 activities - cognitive, emotional, or physical - draw at least partly on a shared pool of mental energy. Studies consistently show that when the brain is occupied with one type of System 2 thinking, it interferes with any other type of System 2 thinking you need to perform at the same time. And performing one type of System 2 thinking makes us less able to perform a subsequent System 2 activity in the period immediately afterward – even if one is physical and the other is cognitive or emotional. Furthermore, when the mind is actively focused on a System 2 activity, it results in System 1 having greater influence over our behavior:
"It is now a well-established proposition that both self-control and cognitive effort are forms of mental work. Several psychological studies have shown that people who are simultaneously challenged by a demanding cognitive task and by a temptation are more likely to yield to the temptation. Imagine that you are asked to retain a list of seven digits for a minute or two. You are told that remembering the digits is your top priority. While your attention is focused on the digits, you are offered a choice between two desserts: a sinful chocolate cake and a virtuous fruit salad. The evidence suggests that you would be more likely to select the tempting chocolate cake when your mind is loaded with digits. System 1 has more influence on behavior when System 2 is busy, and it has a sweet tooth.
"People who are cognitively busy are also more likely to make selfish choices, use sexist language, and make superficial judgments in social situations. Memorizing and repeating digits loosens the hold of System 2 on behavior, but of course cognitive load is not the only cause of weakened self-control. A few drinks have the same effect, as does a sleepless night. The self-control of morning people is impaired at night; the reverse is true of night people. Too much concern about how well one is doing in a task sometimes disrupts performance by loading short-term memory with pointless anxious thoughts. The conclusion is straightforward: self-control requires attention and effort. Another way of saying this is that controlling thoughts and behaviors is one of the tasks that System 2 performs.
"A series of surprising experiments by the psychologist Roy Baumeister and his colleagues has shown conclusively that all variants of voluntary effort - cognitive, emotional, or physical - draw at least partly on a shared pool of mental energy. Their experiments involve successive rather than simultaneous tasks.
"Baumeister's group has repeatedly found that an effort of will or self-control is tiring; if you have had to force yourself to do something, you are less willing or less able to exert self-control when the next challenge comes around. The phenomenon has been named ego depletion. In a typical demonstration, participants who are instructed to stifle their emotional reaction to an emotionally charged film will later perform poorly on a test of physical stamina - how long they can maintain a strong grip on a dynamometer in spite of increasing discomfort. The emotional effort in the first phase of the experiment reduces the ability to withstand the pain of sustained muscle contraction, and ego-depleted people therefore succumb more quickly to the urge to quit. In another experiment, people are first depleted by a task in which they eat virtuous foods such as radishes and celery while resisting the temptation to indulge in chocolate and rich cookies. Later, these people will give up earlier than normal when faced with a difficult cognitive task."
Author: Daniel Kahneman Title: Thinking Fast and Slow Publisher: Farrar, Straus, and GirouxDate: Copyright 2011 by Daniel Kahneman Pages: 41-42
Tags: Cognitive Processes, Temptation
Oxytocin
Nature Reviews Neuroscience 13, 72 (February 2012)
Oxytocin boosts social awareness
Abstract
Sensitivity to the experiences of others contributes to many social behaviours including empathy and cooperation. Here, the authors show that oxytocin influences social behaviour in rhesus macaques in a context-dependent manner.
Tuesday, January 3, 2012
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