This week’s New York magazine has an interesting piece by ex-Portfolio staffer Sheelah Kolhatkar asking “What if Women Ran Wall Street?”:
Despite what we’ve been led to believe, the market isn’t rational or efficient at all—it’s all about feelings. The major plot points of the crisis largely turned on emotion: Dick Fuld was too egotistical to sell Lehman Brothers when he had the chance, so his pride drove it into the ground; Bear Stearns hedge-fund managers lost huge sums of money on subprime mortgages despite the fact that they suspected the worst (“I’m fearful of these markets,” Ralph Cioffi e-mailed a colleague back in 2007); Merrill Lynch was the “fat kid,” as the investor Steve Eisman has put it, so desperate to be like Goldman Sachs that it barreled into every dumb investment imaginable and had to be bailed out by Bank of America. Almost every single bank chief doubled down on mortgage junk at exactly the wrong moment. Emotions led otherwise intelligent men—because, let’s face it, all of them were men—to make terrible decisions.
According to a new breed of researchers from the field of behavioral finance, Wall Street’s volatility is really driven by our body chemistry. It’s the chemicals pulsing through traders’ veins that propel them to place insane bets and enable bank executives to make risky decisions—and those same chemicals tend to have the same effect on everyone, turning them into a herd of overheated animals. And because the vast majority of these traders and finance executives are men, the most important chemical in question is testosterone.
Here are a few things we know about testosterone: Both men and women produce it, but men make fifteen times as much of it as women, on average… Behaviorally, it does all the things that one would expect: It is linked to increased aggression and dominance, confidence, hostility, violence, sensation-seeking… One of the most fascinating things about testosterone is the way it can be influenced by the environment.
The link between risk-taking behavior and high(er) levels of testosterone has been posited before.
How much worse — or better — could women make it?