What If Women Ran Wall Street?
Testosterone and risk.
http://nymag.com/news/businessfinance/64950/?imw=YE
The trouble for all those men pouring into the trading desks is that recent studies suggest purely rational behavior may not come as naturally to them as gender stereotypes would suggest. A couple of weeks ago, for instance, the investment-management company Vanguard released data showing that men were more likely than women to sell stocks at the bottom of the market. Could it be that the fairer sex is better able to ride the ups and downs of Wall Street without letting their emotions get in the way?
“There were always very few women on the floor of the exchanges,” says a hedge-fund manager named Henry Lee, who spent years on the floor of the American Stock Exchange. “But the women who were successful at it were unbelievable.”
Lee is sitting at a trading desk with his friend Harley Evans, a derivatives trader at a firm called Mako Financial Markets, talking about gender differences in their line of work. “They never got ruffled, never got upset,” Lee continues. “Losing their temper? Never.”
“I think women can be very emotional, too,” Evans says, not entirely convinced.
“Women respond to stress differently,” Lee says. Rather than throwing the phone across the room, “women cry.”
“Well, I’ve cried, too,” Evans says.
“Not that I’ve seen. You cried alone in your closet,” says Lee.
“I cried in my beer.”
“The notion of taking chances is definitely more male,” Lee says. “Look, men are much more willing to take a shot on something with incomplete knowledge.”
So, I ask, how would Wall Street be different if there were more women making decisions? Lee offers an analogy based on the fact that he’s going through a divorce: “I would say that when you’re married, your life is much more level,” he says. “And when you’re single, you tend to experience many more swings. For example, you might not go skydiving if you’re married, or go out drinkimg all night with your buddies, or you may not pursue that Ironman.” Having women around, in other words, “prevents extreme behavior—or irrational exuberance.”
Anna Dreber, an economics researcher at Harvard’s Kennedy School, started studying testosterone as a possible explanation for why there tend to be few women in certain fields—math, say, or kickboxing, Dreber’s sport of choice. Through studies conducted at the Harvard biological-anthropology department, Dreber found that appetite for risk in simulated investment games correlated with high testosterone levels and with facial characteristics such as sharp cheekbones and strong jaws that are normally associated with the hormone. “There is a clear sign that something biological explains risk taking,” she says. Testosterone is not the only chemical that affects it—the stress hormone cortisol has a role, as well as the neurotransmitter dopamine, among others—but it’s by far the most powerful.
Dreber has been thinking about the issue a lot recently, especially after reading the reports about AIG’s London office, a hothouse where a small group of men almost brought down the world economy. “When you have this place with all these male traders taking enormous risk,” she says, “I can imagine that being in a very competitive environment with lots of other competitive males makes the testosterone go up, which leads to even more risk.” Another study Dreber has in the works will look at the effects of the hormones in the birth-control pill on women, because women having their periods have been shown to act more like men in terms of risk-taking behavior. “When I present that in seminars, I say men are like women menstruating,” she says, laughing.
Dreber is not the only one to see human behavior on Wall Street in such starkly biological terms. To Terry Burnham, economist and author of Mean Markets and Lizard Brains: How to Profit From the New Science of Irrationality, modern finance is a jungle where apes are strutting around, puffing out their chests and stealing each other’s women and bananas. Burnham’s metatheory is that human beings haven’t evolved nearly as rapidly as their environment has since the Stone Age. One could argue that technology—the ability to make enormous trades in the blink of an eye with supersonic computers—only exaggerates the primal, emotional element, allowing people to respond in a flash to their biochemical urges. The better the machines the more our animal instincts take over. “The caricature view would be, the caveman wins the battle, has more babies, crushes his enemies, then puts on a suit 10,000 years later and goes into a boardroom and still wants to crush his enemies,” Burnham says.
Burnham wanted to understand self-defeating behaviors in the business world, such as why good companies pay billions of dollars to buy crappy companies (Time Warner-AOL), or why a male friend of mine who shall remain nameless doubled down on Citigroup shares at $50. In a study conducted at Harvard, Burnham found that higher-testosterone men were more likely to reject money that was offered to them if someone else was getting a larger share. A similar study at the University of British Columbia looked at the question through the lens of mergers and acquisitions, the primal psychodrama of corporate America. The authors found that the younger a CEO was, and therefore the higher his testosterone level (and the lesser his experience), the more likely he was to walk away from merger negotiations, even when the deal was in the company’s best interest.“Having too many men involved in business might cause them to take more risks, and having more women would probably be good in lots of settings,” Burnham says. “Women are the brake pedal.”Last year at Davos, a spontaneous (and slightly goofy) discussion broke out about whether Lehman Brothers would have failed if the company had been called Lehman Sisters. (They might have forgotten that there was at least one sister, Erin Callan, but she had only just become CFO when things fell apart.) The conclusion was that Lehman would probably still be in business, although it also would have made less money during the boom years.That’s the thing about Wall Street: Until the crash, no one wanted to hire traders of either gender who didn’t have a large appetite for risk. In that model, the lows might have been very, very low, but the highs were astronomical: For every Brian Hunter, the rogue trader from the hedge fund Amaranth Advisors, which lost $6.6 billion largely because of his bets on the natural-gas market, you have an Andrew Hall, the Phibro trader who was owed a $100 million bonus after his unit made $2 billion for Citigroup over the last five years.
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