I just can't get enough of the neuroscience of risk-taking. I'm sure regular readers will recall my May post, "How Testosterone Poisoning Wrecked the Global Economy," in which I reported the results of a study conducted by two Cambridge University neuroscientists on the daily-changing brain chemistry of London financial traders.
Short version: The traders got hooked on the testosterone buzz from making big hits in the markets, and chasing that buzz led to increasingly irrational behavior.
Now let's add to the mix a very long and lurid Bloomberg article exploring a decline in cocaine binging among London financiers in the aftermath of the the financial crisis. (I know, I know, you are shocked, shocked to learn that traders and investment bankers were big cocaine users.)
For our purposes, the most interesting section of the article:
Scientists say it's no accident that trading and cocaine sometimes go together. Both involve taking risks and have a similar effect on the brain. Each activity raises dopamine levels, the organ's feel-good chemical, according to Trevor Robbins, professor of cognitive neuroscience at the University of Cambridge. Dopamine surges when we take risks, such as going sky diving, betting on stock price movements or hiding in an office rest room and snorting a line of coke.
Studies show that people who take risks have low levels of dopamine receptors and try to shock the brain into a boost of the chemical through novel situations. They're also more likely to become addicted, Robbins says.
(Hey, can I get a shout-out for Cambridge University's neuroscience department? These people really know where it's at.)
So now, I think we're beginning to get a much clearer picture of what, or whom, to blame the financial crisis on. Forget about the Community Reinvestment Act, the repeal of Glass-Steagal, Goldman-Sachs, Phil Gramm, the Commodity Futures Modernization Act, Larry Summers and unregulated credit default swaps. The real villains were a bunch of coke-addled geeks seeking a dopamine high. 'Nuff said.
Oh, and just for the record, I would like to amend the following paragraph, taken from my May post, and my nominee for best paragraph I've written this year, with one more clause, (in italics), to better represent the state-of-the-art in neuroscience.
Sure, any guy knows what it is like to feel your testosterone surging after accomplishing such manly feats as hitting a home run, bringing down a woolly mammoth with your handmade spear, kissing an attractive woman, writing a really killer blog post, or snorting a fat line of coke in the office bathroom. So it stands to reason that having a kick-ass day on the derivatives desk would result in the same chemical boost. It's all in a day's work. Me hunt, me gather, me buy-and-sell option.