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

by John Coates

One economist who fully understood the challenges for policy of nonrational decision making was Keynes. He insightfully described how “animal spirits” drive investment and market sentiment, but he lacked any training in biology, so he never attempted to specify what exactly these animal spirits were. Nonetheless, as animal spirits bulked larger in his thinking, the less faith he had in the rate of interest as a tool for managing the economy. That is one reason he came to believe in fiscal policy, the state taking over the role of stabilizing an economy that can no longer do it on its own. Keynes harbored doubts about the ideal of a life guided by, and public policy directed at, rational choice. He once humorously hinted at these doubts when recounting a conversation he had with his friend Bertrand Russell, the arch-rationalist philosopher. Russell, he recalled, claimed that the problem with politics was that it is conducted irrationally and that the solution was to start conducting it rationally. Keynes dryly commented that conversations along these lines were really quite boring. And they are, still today. How, then, can we deal with irrational exuberance and pessimism? Can bank and fund managers and central bankers manage the biology of risk takers? Here we are off any map drawn by rational-choice theory. We inhabit a culture dominated by Platonic and Cartesian ideals according to which reason is the ultimate arbiter of our decisions and behavior. If we are indeed built ...