Whether the arms of the law are long or not, surely stock traders would wish to have long arms, to grasp whatever they could. Now it turns out that longer ring fingers could indeed mean resounding success in the stock markets.
In a study of 44 London traders, published in the Proceedings of the National Academy of Sciences
, the most successful tended to have longer ring fingers than index fingers. It is a ratio linked to high prenatal exposures to androgen, a male sex hormone. This exposure in turn is believed to increase adult testosterone levels.
"Trading is a physical activity, requiring physical traits. Traders have to engage in visual motor scanning, and react quickly when a price discrepancy pops up," said neuroscientist John Coates of the University of Cambridge, lead author of the study and former Wall Street trading-desk operator.
"We're looking at how the market selects, and what it's selecting for. It appears that it's not selecting for rational expectations, but for biological traits," he said.
In a previous study in April of 2008, when the current financial crisis was in its infancy, Coates' team showed that trading indeed produced massive, self-reinforcing hormone fluctuation.
Success drove up testosterone levels, which encouraged excessive risk-taking. When success and testosterone feed on each other, the more aggressive could be pushed to the brink. And many were.
But apparently failures are brushed aside, and traders are transfixed by success stories. So believing that in the marketplace aggression could hold the key to success, the rest of the flock emulate. Greed fuelled by aggression could indeed be a sure recipe to disaster. Now the catch is you have to be biologically programmed for hormonal excess and stock market success.
(Conversely, failure drove up levels of cortisol, a stress hormone that can cause excessive caution.)
Also a variety of traits — from sexual preference and athletic aptitude to assertiveness and aggression — have been correlated with ring-to-index finger ratio. Some of these studies have not been replicated, and have been criticized as a modern form of phrenology. But researchers do agree that the ratio tracks with prenatal androgen exposure. This early exposure is believed to determine testosterone levels during adulthood, carving a metabolic channel down which hormones can flow — and flow they do on trading room floors, where fortunes can be made and lost in minutes, writes Brandon Keim on Wired.
The latest study comes with caveats: Finger ratios are not a perfect surrogate for natural testosterone levels, and the findings need to be replicated outside of Coates' 44 traders. Neither, stressed Coates, does biology explain the current financial crisis. Its roots lie in misguided executive compensation schemes, wrongheaded economic policy and regulatory failure.
But leading up to the crisis — and underlying public acceptance of the mistakes and wrongdoing that produced it — was a widespread belief in the fundamental rationality of free markets and economic behaviors. That assumption may need to be revisited.
"Efficient market theory has underlain so much policy for the last 15 years. The market is supposed to select for traders or investors who display rational expectations," Coates said. "We're focusing on biology because we think the economics underlying that paradigm are built on sand."
Bruce McEwen, a Rockefeller University neuroendocrinologist, said that Coates' findings reinforce animal research on the effects of sex hormone exposure. "It predisposes the nervous system and resulting behavior to develop in certain ways," he said. "In this case, it's the development of the skills that make for success in this kind of rapid stock trading."
But Anna Dreber, a Harvard University economist, noted that though index-to-ring finger ratios are a promising measure of natural testosterone levels, they are imprecise. In their study of risk-taking in college students, Dreber and economic anthropologist Coren Apicella found no correlation between finger ratio and risky behavior.
However, Apicella said that the correlation may be strongest on a trading floor, where constant vigilance and quick reaction times are demanded.
"The emergence of behavioral economics has led to a more realistic view of human nature," Dreber said. "Understanding these causes are the next step, and this group of researchers is doing that."