Male traders are from Mars

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Economist.com | NEW YORK

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Behavioural Economics

THERE is something refreshingly Northern European about the argument that a good and effective way to reform finance is to bring more women into the room. Anne Sibert, an economist, notes Iceland had just one senior female banker, and she quit in 2006. Would things have been different if more Icelandic women worked in finance?

Ms Sibert cites evidence that there exists something particular about male brain chemistry which perpetuates bubbles. An investor may buy into a known bubble so long as he reckons it will continue into the next period. He counts on his ability to time the market and sell the asset before the bubble pops. The research suggests making money off a bubble in the early stages, inflates male over-confidence, and this feeds the bubble’s growth.

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.

If—as the research may suggest—men are less risk averse than women, then a work group composed primarily of men (or primarily of women) may be a particularly bad idea. A vast psychology literature documents the phenomenon that group deliberation tends to result in an average opinion that is more extreme than the average original position of group members. If a group is composed of overly cautious individuals, it will be even more cautious than its average member; if it is composed of individuals who are overly tolerant of risk, it will be even less risk averse than its average member (Buchanan and Huczynski 1997).

You need a little overconfidence to be successful in finance and business, but too much mixed with a competitive drive and herd behaviour can have disastrous results. Can more women at the table temper this effect? Perhaps, but that would require everyone at the table listening, respecting one another, and not taking what gets said personally. In the fast-paced, ego-driven world of finance, overcoming age-old communication problems between the sexes is a tall order.

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Somebody mentioned gold will go down when bond yields go up. Why?

Yes, that can happen in a sound economy but in this one would cause gold to soar in price if yields start going up. Why?

Because the Fed has no intention of letting yields go up but, it may happen anyway. If yields start going up it is because the dollar is in trouble and they can’t sell enough bonds at the lower rates. However, it is a two-edged sword because the more the dollar drops the less people will want the bonds because they would get paid back with devalued dollars.

I am not saying some people won’t buy the bonds if the yield goes up but, not enough to help the government out of the mess it is in. There is about $500 billion available for lending and the government wants a couple trillion. So, you could offer 10% yield and you still can’t get enough lenders.

Also, at this time, nations that lend to us need to spend on their own people and economies instead of lend to the U.S. Our nation is basically bankrupt so our people can’t cover the loans we need and the world can’t either.

Then you have the rumblings in the G-20 of a new global currency to be the world’s reserve currency. The people who say the dollar won’t end its reign as the world’s reserve currency say there is no currency to replace it. They are probably right which is why the G-20 was talking about an entirely new currency tied to a “basket of currencies.” Some say it will be a gold backed currency but, I doubt that.

If the world returns to a gold standard, it would most likely be due to oil nations. The Gulf nations are going to depeg this summer from the dollar and go to a common currency. The Malaysian gold and silver backed currency is being pushed by Malaysia to be the “Islamic currency.” Should they decide to go with that currency and then require oil be sold in that currency, it would destroy demand for the dollar.

Even if they only go with a “common currency” tied to a basket of currencies as has been talked about in the Gulf nations, and require oil be sold in it, the dollar’s demand will fall like a rock and all commodities, especially gold will soar in price even if value is falling.

The U.S. government seems to be doing everything it can to destroy the dollar. You have to ask why? Could it be they need an excuse to default or hyper-inflate out of debt. Testimony to Congress says we can’t grow or tax out of this anymore. Well, guess where that road leads?

The Gov. Accounting Office says it leads to the “gradual, if not sudden loss of ..our standard of living…” Guess how a “sudden loss” happens? A currency collapse!Don’t go by what our government says. Go by what they are doing and what they are doing is an all out war against the dollar’s value.

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