Patterns in the dusk

Via Bruce Schneier, it’s impressive the non-existent patterns that our minds will find in the environment:

During the war, rumors began to filter back to Britain about a German “engine-stopping ray.”2 The site of the supposed misadventure was invariably near a television tower. Jones relates,

As usually reported, the phenomenon consisted of a tourist driving his car on one of the roads in the vicinity, and the engine suddenly ceasing to operate. A German Air Force sentry would then appear from the side of the road and tell him that it was no use his trying to get the car going again for the time being. The sentry would, however, return and tell him when he would be able to do so. The sentry appeared in due course, and the engine started.3

The linked article suggests that in times of stress, people are more likely to find false patterns; the stress and fear are undermining our ability to think clearly.  The ‘stress hormone’ that people typically think of is cortisol, but I can’t find any papers linking cortisol to finding false patterns – or apophenia as I’ve learned it is called.  That’s probably because it’s a hard thing to search for; ‘cortisol false patterns’ will just result in articles about patterns of cortisol!  So if anyone has something knowledgable to say, please pass that knowledge on!

Investigating Wall Street through neuroscience

There’s a good collection of links on metafilter about decision-making in finance, and includes a bit about John Coates, who investigates the role of testosterone and cortisone in decision-making.  This article from Businessweek about how this ex-trader got interested in neuroscience:

The more Coates learned, the more he became convinced that traders were, as he put it, “a clinical population.” The stimuli of a trading floor triggered chemical changes in people’s brains, emotionally whipsawing them. During the tech bubble, he recalls, “People just really slipped their moorings: They were motor-mouthing, they weren’t sleeping, they were on this high. It was initially reasonable to assume it was cocaine, but I don’t know many traders that do that. There was something going on, it was just incredibly noticeable, and I realized that at times I had also felt that way.”

I think this is true not just about financial traders, but about anyone in a high-stress occupation during good times.  I know I get this way when everything is working perfectly in lab.

With enough victories, though, testosterone can reach levels that make the animal act foolishly. He picks fights he can’t win, tries to claim too much territory, and roams around in the open where predators might pick him off. A human being on a trading floor might take massive, risky bets on the strength of the American housing market or on U.S. corporate bonds. One of the traders Coates studied went on a hot streak, making twice his average profit-and-loss ratio for five days in a row. By the end of it his testosterone levels had risen 80 percent. If Coates had followed the trader long enough, he believes, there was a good chance “he would be irrationally exuberant and blow up.”

For losers, the effect is the opposite: The stress and worry of losing money cause the endocrine system to flood the body with cortisol, which makes people afraid to take even favorable bets. In the wake of a financial crisis, it’s not just Wall Street traders who suffer from this, but anyone making decisions about money, whether it’s an employer who balks at hiring or a bank officer leery of making a loan even when the Federal Reserve is offering her free money to do so.

Obviously, testosterone and cortisol have wider effects, and the effects they have are contingent on a lot of other environmental variables.  Studying testosterone and cortisol on the trading floor will elucidate just one (important!) aspect of their function.