The Hour Between Dog and Wolf: Risk Taking, Gut Feelings and the Biology of Boom and Bust Hardcover – 1601
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Top Customer Reviews
Coates' main thesis is that the body plays a significant role in our decisions. Not the brain, the body. Coates continues the trend of exploring our decision making from a non-conscious point of view (a theme in books like Blink or Fast and Slow). Only Coates moves beyond the unconscious brain to discuss how the body impacts our thinking. Largely, Coates examines how hormones related to fight or flight systems in the body change the way we behave and think. Far from the rational model of behavior dominant for so long in economics (honestly, I can't believe anyone still believes that nonsense), Coates shows how winning can prime a testosterone boost that amplifies not only traders' successes, but also their appetite for risk and hubris. Thus one gets a spiral of effective optimism that leads to hubris that leads to a spectacular crash and burn. At which point cortisol takes over and induces the opposite effect. Exaggerated withdrawal and reduced efficacy, leading to missed opportunities. Coates examines the evidence using both lab and field data, the latter collected from real London financial traders at work.
Coates is an engaging author, and uses fictional characters to illustrate each of the systems he discusses.Read more ›
But a wise man holds them back." -- Proverbs 29:11 (NKJV)
The financial markets are supposed to be efficient (almost perfectly reflecting the known information to set accurate valuations). Yet most stocks will oscillate plus or minus 30 percent from their daily closing average during the course of a year. Surely, the value of the company didn't shift so much in that time?
In recent years, experiments by behavioral researchers have challenged the efficient markets theory by showing that many decisions work differently than a calculating computer would. In The Hour between Dog and Wolf, John Coates (a senior research fellow in neuroscience and finance) reports on newer research into how the bodies of people making investment and trading decisions are affected by what they are doing. Drawing on his personal experience at Goldman Sachs and Deutsche Bank, the findings are described in the context of market conditions that will seem quite familiar to experienced investors. I found the book to be fascinating. And I included a recommendation to read it in Lesson Fourteen of my next book, Excellent Solutions.
I thought that the book was weakest in postulating possible ways to dampen the harmful effects of neurology and body chemistry on investment behavior. I will welcome controlled experiments that follow up on these measurements to see how minds and bodies can be kept under more appropriate discipline in making decisions and taking actions.
Brilliantly written, Coates has a light style that helps make it a compelling read, rather than a dry slog.