The Hour Between Dog and Wolf: How Risk Taking Transforms Us, Body and Mind

by John Coates

Women, for their part, have very different biologies from men. They produce on average about 10–20 percent of the amount of testosterone as men, and they have not been exposed to the same organizing effects of prenatal androgens, so they too may be less prone to the winner effect than young men. Women’s stress response also differs substantially from men’s. One psychologist, Shelley Taylor, and her colleagues have in fact argued that the fight-or-flight reaction is more of a male response, and is not the default reaction to threat for women in quite the same way. A woman will indeed experience fight-or-flight if faced by a grizzly bear, just as a man will; but Taylor thinks that a woman’s natural reaction to threat, at least within the social situations that are today our normal environment, is what she calls the “tend-and-befriend” reaction, an urge to affiliation. She reasons that if you have children to care for, tend-and-befriend makes more sense than launching into a fist fight or running away.

As for their long-term stress response, women on average have the same levels of cortisol as men, and these are equally volatile. But research has found that women’s stress response is triggered by slightly different events. Women are not as stressed by failures in competitive situations as are men; they are more stressed by social problems, with family and relationships. What all these endocrine differences between men and women add up to is the following: when it comes to making and losing money women may be less hormonally reactive than men. Their greater numbers among risk takers in the financial world could therefore help dampen the volatility.

What about the second-mentioned explanation, that men and women differ in their appetite for risk? There have been some studies conducted in behavioral finance that suggest that on computerized monetary choice tasks women are more risk averse than men. But here again, I am not entirely convinced, because other studies, of real investment behavior, show that women often outperform men over the long haul, and such outperformance is, according to formal finance theory, a sign of greater risk taking. In an important paper called “Boys Will Be Boys,” two economists at the University of California, Brad Barber and Terrance Odean, analyzed the brokerage records of 35,000 personal investors over the period 1991–1997 and found that single women outperformed single men by 1.44 percent. A similar result was announced in 2009 by Chicago-based Hedge Fund Research, which found that over the previous nine years hedge funds run by women had significantly outperformed those run by men.

I like this policy of altering the biology of the market by increasing the number of women and older men in it. It strikes me as eminently sensible, and my hunch is that it would work. To argue for it one need not claim that women and older men are better risk takers than young men, just different. Difference in the markets means greater stability. There is, however, one point about which I have much more than a hunch, about which I am as certain as certain can be—that a financial community with a more even balance between men and women, young and old, could not possibly do any worse than the system we have now. For the one we have now created the credit crisis of 2007–8 and its ongoing aftershocks, and there is quite simply no worse outcome for a financial system.

Aristotle created, more or less on his own, the template of the Western mind. Traces of his influence linger in every subject. Any student, no matter what department he or she studies in, will probably read something by Aristotle in her first year at a university, even if it is just a paragraph or two: political science students might read the Politics, law students the Ethics, philosophers the Metaphysics, logicians the Analytics and the Categories, biologists the History of Animals, physicists and chemists a quotation or two from the Physics, and literature students—as well as aspiring Hollywood scriptwriters—the Poetics, in which Aristotle codified the structure of Western narrative. Indeed, it could be argued that within universities the departmental divisions themselves owe their very existence to the way Aristotle carved up our knowledge into its various branches, based on their subject matter and method of study.