John Coates brings two seemingly different topics—the financial market with human biology—into one book. By understanding the insights in The Hour between Dog and Wolf, you will be able to look at your body and brain differently, and then, navigate yourself in the modern world more effectively.
Hormones are chemical messengers carried by the blood from one tissue in the body to another. We have dozens of them. We have hormones that stimulate hungers and ones that tell us when we sated; hormones that stimulate thirst and ones that tell us when it stasis, the maintenance of vital signs, like blood pressure, body temperature, glucose level, etc., within the narrow bands needed for our continued comfort and health. Most of the physiological systems that maintain our internal chemical balance operate preconsciously, in other words without out being aware of them.
But sometimes we cannot maintain our internal balance through these silent, purely reactions. Sometimes we need behavior; sometimes we have to engage in some sort of physical activity in order to reestablish homeostasis.
Hunger, thirst, pain, oxygen debt, sodium hunger and the sensations of heat and cold, for example, have accordingly been called “homeostatic emotions.” They are called emotions because they are signals from the body that convey more than mere information – they also carry a motivation to do something.
Hormones do not cause our behavior. They act more like lobby groups, recommending and pressuring us into certain types of activity. You can, in other words, choose your actions, and ultimate you take responsibility for them.
One group of hormone has particularly potent effects on our behavior – steroid hormones. This group includes testosterone, estrogen and cortisol, the main hormone of the stress response.
Subsequent research by McEwen and others showed that a steroid hormone, because of its widespread receptors, can alter almost every function of our body (its growth, shape, metabolism, immune function) and of our brain (its mood and memory and of our behavior.
Steroid hormones evolved to coordinate body, brain, and behavior during archetypal situations, such as fighting, fleeing, feeding, hunting, mating and struggling for status. At important moments like these, you need all your tissues cooperating on the task at hand; you do not want to be multitasking.
During moments of risk-taking, competition, and triumph, of exuberance, there is one steroid in particular that makes its presence felt and guides our actions — if testosterone seemed a likely candidate for the molecule of irrational exuberance, another steroid seemed a likely one for the molecule of irrational pessimism – cortisol.
Cortisol is the main hormone of the stress response, a bodywide response to injury or threat.
In the brain, cortisol, like testosterone, initially has the beneficial effects of increasing arousal and sharpening attention, even promoting a slight thrill from the challenge, but as levels of the hormone rise and stay elevated, it comes to have opposite effects – promoting feelings of anxiety, a selective recall of disturbing memories and a tendency to find danger where none exists.
Why have we for so long ignored the fact that we have a body, and that our body affects the way we think? The most likely reason is that our belief about the mind, the brain and behavior have been molded by a powerful philosophical idea we inherited from our culture – that of a categorical divide between mind and body.
The Platonic idea of mind-body split lingers in economics, that it has impaired our ability to understand the financial market. If we want to understand how people make financial decisions, how traders and investors react to volatile markets, even how markets tend to overshoot sensible levels, we need to recognize that our bodies have a say in risk-taking.
Money may be the last thing about which we can remain cool.
“Think mortal thoughts.” – Aristotle
It is common when starting out in neuroscience to go looking for the computer in the brain, for our awesome reasoning capacities; but if, however, you view your brain and body and behavior with a robust appreciation of the fact that you are built to move, and if you let that simple fact sink in, then you will never see yourself in quite the same way again. You will come to understand why you feel so many of the things you do, why your reactions are often so fast as to leave conscious thought behind, why you rely on gut feelings, why it is that during the most powerful moments of your life – satisfying moments of flow, of insight, of love, of risk-taking, and traumatic moments of fear, anger, and stress – you lose any awareness of a split between mind and body, and they merge as one.
Seeing yourself as an inseparable unity of body and brain may involve a shift in your self-understanding, but it is a truly liberating one.
Many of the advances leading to our dominance over other animals did indeed take place in the body, which over time became taller, straighter, faster, cooler, more dexterous and much more talkative. According to some evolutionary accounts, human prehistory was driven by the growth of our neocortex, the rational, conscious, newest and outermost layer of the brain. At this brain structure blossomed, we developed the ability to think ahead and choose our actions, and in so doing became liberated from automatic behaviors and an animal enslavement to immediate bodily needs.
The true miracle of human evolution was the development of advanced control systems for synchronizing body and brain.
By observing an important message from our evolutionary past, if you do not need to move, you do not need a brain.
Our thoughts are intimately tied to our physiology. Decisions are decisions to do something, so our thoughts come freighted with physical implications.
When faced by situation of novelty, uncertainly, opportunity of threat, you feel the things you do because of changes taking place in your body as it prepares for movement.
Movement in times of emergency has to be lightning-fast, these gut feelings are generated quickly, often faster than consciousness can keep up with, and are transmitted to part of the brain of which we have only a dim and diffuse awareness.
Gut feelings and emotions, rationality and even self-consciousness itself should be seen as more advanced tools that emerged over the course of evolution to help use regulate our body.
We evolved in a world where dangerous objects frequently hurtled at us at high speeds.
The brain anticipates the actual location of the object, and moves the visual image we end up seeing to this hypothetical new location. In other words, your visual system fast-forwards what you see.
Research in experimental psychology has found that perceptual acuity and general levels of attention increase as more senses are involved. In other words, vision becomes more acute when coupled with hearing, and both become more acute when coupled with touch. The explanation ventured for these findings is that information arriving from two or more senses instead of just one increases the probability that it is reporting a real event, so our brain takes it more seriously.
The brain has an even more effective way of saving you from your fatally slow consciousness. When fast reactions are demanded it cuts out consciousness altogether and relies instead on reflexes, automatic behavior and what is called “preattentive processing.” Preattentive processing is a type of perception, decision making and movement initiation that occurs without any consultation with your conscious brain, and before it is even aware of what is going on.
To speed our reactions the brain tends therefore to pass control of the movement, once it has been learned, back to lower regions of the brain where programs for unthinking, automatic and habitual actions are stored.
We tend to believe that our brain interacts with our body just as a person interacts with a car, choosing the direction and speed and issuing commands to a passive and mechanical device. But his belief does not stand up to scientific scrutiny.
Consciousness is merely a bystander observing a decision already taken, almost like watching ourselves on video. Scientists and philosophers have proposed many interpretations of these findings, one of which is that the role of consciousness may not be so much to choose and initiate actions, but rather to observe decisions made and veto them, if need be, before they are put into effect, much as we do when we practice self-control by stifling inappropriate emotional or instinctive urges.
Intuition is thus nothing more mysterious than recognition. It cannot be trusted in the absence of stable regularities in the environment.
We should not be asking if we should trust our intuitions; we should be asking how we can train ourselves to possess a skill that can be relied on.
There is in fact a connection between preconscious decisions and the body, because it is gut feelings that allow us to rapidly assess whether a pattern and a considered choice will most likely lead to a pleasant or a nasty outcome, whether we like or dislike, welcome or fear it.
Without such visceral coloring we would be lost in a sea of possibilities, unable to choose. We may be gifted with considerable rational powers, but to solve a problem with them we must first be able to narrow down the potentially limitless amount of information, options and consequences.
Feeling was an integral component of the machinery of reason.
Your body affects your thoughts, and here again everyday examples are easy to find. When you are hungry or thirsty, for instance, your thoughts change and you develop what is called a “selective attention” to signs of food and water, and you stop paying attention to anything else, such as the book you are reading or the beauty of a sunset.
During taxing mental and physical activities our glucose reserves become depleted, and this reduces our capacity of self-control. Scientists concluded that allocation of energetic resources during emergencies follows a “last in, first out” rule, according to which mental abilities that developed last in our evolutionary history, like self-control, are the first to be rationed when fuel is low. Muscles, which draw a small amount of glucose when at rest, come to monopolize available resources during physical activity.
When you feel depressed you may decide, in a moment of self-assertion, to pick yourself up and battle on, forcing a smile, straightening your posture, walking more briskly; and in time these changes may actually work, you may end up feeling happier.
We tend to think that our emotional feelings come first, and then cause our emotional behavior. But according to William James, the feeling of an emotion is in some ways the least important part of the experience.
Our body, through its muscles, can thus transmit information back to the brain fast enough not only to keep up with our emotional life but also to generate it.
A good meal can prove more than a mere gustatory treat: it can settle the body and calm the brain and suffuse us with a profound sense of well-being. In short, neural activity in our head can affect our digestion; neural activity in our gut can affect our mood and thoughts.
Feelings help slant our attention, memory and cognitive operations so that they synchronize with our bodies. Feedback ensures that our tissues do not work at cross purposes. Feedback, carried by nervous system and hormones alike, unifies body and brain at the most important points in our lives. And at these moments – of euphoria, of flow, of love, of fear, of fight – body and brain merge.
Gut feelings economize on limited computational resources and safeguard our decisions, preconsciously steering us away from dangerous options we might be considering.
In fact, our conscious brain has surprisingly little grasp of what makes us decide to do one thing rather than another.
We frequently and often comically misinterpret our actions. Given this unfortunate fact, we can appreciate the necessity when making an important decision of obtaining a second opinion. One of the most valuable sources of a second opinion, one that brutally and coldly exposes the faults in our reasoning, is the use of statistics. Alternatively, another person working with you, a coach say, can also help improve your decision making.
Effort, risk, stress, fear, even pain in moderate doses, are, or should be, our natural state. But just as important, just as vital to our health, the key to continued growth, is what sports physiologists refer to as the recovery period.
Should we be denied these downtimes, even very brief ones, even when things are going well, our biology can become unbalanced, leading us into pathological mental and physical states and inappropriate behavior.
Challenge, recovery, challenge, recovery – that is what toughens us.
Information warns us of danger, prepares is for action, helps us survive. And it enables us to perform that most magical of all tricks – predicting the future.
The amount of signal is proportional to the amount of novelty – or put another way, the amount of uncertainty – in it. That may seem counterintuitive. However, real information should tell us something we do not already know; it should therefore be unpredictable.
Information is synonymous with unpredictability, with novelty. When receiving pure information we are in a state of maximum uncertainty about what comes next.
The common sense notion that our senses operate like a movie camera, recording nonstop the sights and sounds around us. However, they do not work at all like that. Indeed, it is probably closer to the truth to say that we, like the frog, are built to ignore the world unless something of importance happens.
We are so completely enthralled by information that one could, without exaggeration, say we are addicted to it. The addiction develops under the influence of another neuromodulator, this one called dopamine.
Dopamine stimulates the wanting of something rather than the liking of it.
We enjoy and crave environments in which we receive unexpected rewards; in other words, we enjoy risk.
Perhaps curiosity itself, the need to know, is a form of addiction, making us race to the end of a good mystery novel, or driving scientists to work day and night until they discover insulin, say, or decode the structure of DNA, scientific breakthrough being the ultimate hit of information.
A large proportion of our positive activities depend on spontaneous optimism rather than on a mathematical expectation.
Recent research has found that an enriched environment is such an attractive alternative to drugs that animals addicted to cocaine, once returned to an enriched environment, will actually kick their habit.
The euphoria, overconfidence and heightened appetite for risk that grip traders during a bull market may result from a phenomenon known in biology as the “winner effect.” Biologists studying animals in the field had noticed that an animal winning a fight or a competition for turf was more likely to win its next fight. This phenomenon had been observed in a large number of species.
To raise our testosterone level, we must engage in all sorts of occult rituals and physical exercises before our bodies will even consider our request for more power.
Sport scientists probably know more than anyone about what needs doing. Their techniques include altering the balance between aerobic and anaerobic exercises, between fun and grueling sessions, their timing and length, weights lifted, diet, amount of sleep and so on, until their athletes achieve just the right levels of testosterone.
At low levels of testosterone an animal will lack motivation, arousal, energy, speed and so on, but as testosterone levels rise so too does the animal’s performance in competition and fights. When testosterone reaches its high point on the inverted-U curve the animal enjoys optimal performance. It is in the zone. However, should testosterone continue to rise, the animal begins to slide down the other side of the hill, and its risk-taking becomes increasingly foolish.
There is a further cost of high testosterone. Elevated testosterone, and the larger or more ornamented body it promotes, is energetically expensive, and can eventually wear down an animal’s body.
Rising testosterone, it should be pointed out, does not start a bull market; usually a technological breakthrough or the opening up of new markets does that. But testosterone may be the catalyst that turns a rally into a bubble.
In many animals testosterone levels fluctuate over the course of the year, and in humans these levels rise until the autumn, and then fall until the spring. This autumnal drop in testosterone can lead animals into a condition called “irritable male syndrome,” in which they become moody, withdrawn and depressed.
The stress response is useful when we are faced by a mountain lion, it can prove largely counterproductive when seated in the workplace. Indeed, workplace stress provides a vivid illustration of how our body can have a plan of its own for handling a crisis, one over which our conscious minds have little control.
Cortisol slows digestion by inhibiting digestive enzymes and shunting blood away from the stomach walls. It further inhibits the production and effects of growth hormone, stunting growth in young adults exposed to stress.
Cortisol has further effects in preparing us for a crisis; it suppresses the reproductive tract by inhibiting the synthesis of testosterone and sperm in men, and estrogen and ovulation in women.
Researchers have found that three types of situation threat and elicit a massive physiological stress response – those characterized by novelty, uncertainty and uncontrollability.
Control, even the illusion of control, can mitigate the stress response, while the loss of control in a threatening situation provokes the most terrifying stress response.
The stress response evolved as a rapid, short-lived and muscular retaliation; it was designed to switch on quickly, and to switch off after a short period of time. If it fails to do so, widespread medical problems ensue, largely because the stress response is metabolically expensive. The state of heightened readiness it promotes can be maintained over the long term only at the cost of breaking down many tissues in the body, much like burning furniture to keep a house warm.
The ancient regions of the brain controlling the stress response – the amygdala, hypothalamus and the brain stem – cannot distinguish clearly between a physical threat, which is usually brief (one way or the other), and a psychological or work-related one, which can endure for months, even years.
Just as high levels of cortisol help us store traumatic events, so too do they later help retrieve memories of them. As cortisol levels rise, and our exposure to the hormone becomes chronic, we increasingly recall the events that were stored under its influence.
“Learned helplessness,” a state in which a person loses all faith in his ability to control his own fate.
Prolonged and severe stress leads to physical diseases such as the difficulty maintaining an erection, reduce sleep time, raised heart rate and blood pressure. At the extreme, stressed individuals, with elevated glucose and inhibited insulin, can become susceptible to abdominal obesity and type 2 diabetes.
The bodily response initiated to handle the stress feeds back on the brain, causing anxiety, fear, and a tendency to see danger everywhere. In other words, cortisol is the molecule of irrational pessimism.
Given what is at stake, we have to ask: can we turn off the cortisol? Can we control its toxic body-brain feedback loop? Sadly the answer is: only with very great difficulty. Our conscious and rational selves have very little control over subcortical parts of the brain such as the amygdala, the hypothalamus, and the brain stem.
Our findings illustrated just how disconnected the conscious and unconscious stress responses can be, how people often invent stories to accompany their behavior.
Despite this seemingly bleak conclusion, research into the physiology of the stress response holds out more promise than discouragement. This research raises the possibility of training our physiology so that we develop a greater mental and physical stamina, toughening us against the fatigue, anxiety and psychiatric disorders that follow from chronic stress.
Physical toughness is today relatively well understood. Sports scientists have made great advances in their understanding or strength, posture, coordination and endurance. Mental toughness, by comparison, has received far less attention, and remains accordingly less well understood.
Mental toughness involves a particular attitude to novel events: a toughened individual welcomes novelty as a challenge, sees in it an opportunity for gain; an untoughened individual dreads it as a threat and sees in it nothing but potential harm.
Resilience to stress comes from experiencing stress.
The process of mental toughening bears similarities to that of physical toughening.
The most important toughening regime, not surprisingly, is exercise. Humans are built to move, so move we should. The more research emerges on physical exercise, the more we found that its benefits extend far beyond our muscles and cardiovascular systems. Exercise expands the productive capacity of our amine-producing cells, helping to inoculate us against anxiety, stress, depression and learned helplessness. It also floods our brains with what we called growth factors, and these keep existing neurons young and new neurons growing so our brains are strengthened against stress and aging.
One type of toughening regime is especially intriguing, and that is exposure to cold weather, even to cold water. People who are regularly exposed to cold weather or who swim in cool water may have undergone an effective toughening regime that has made them more emotionally stable when confronted by prolonged stress.
Fatigue should be understood as a signal our body and brain use to inform us that the expected return from our current activity has dropped below its metabolic cost. The cure for fatigue, according to this account, is not a rest; it is a fresh task.
When we are mired in stress, what we desperately need to do is minimize the novelty in our lives. We need familiarity. But quite often we seek out the exact opposite, responding to chronic stress at work, for example, by taking a vacation in some exotic place, thinking that change of scenery will do us good. And under normal circumstances it does. But now when we are highly stressed, because then the novelty we encounter abroad can just add to our physiology load.
People practicing Buddhist meditation engaged their gut feelings more than others, and as a result made more rational choices in a financial decision-making task.
Once we come to understand the signals our bodies send us, including fatigue and stress, there is a great deal we as individuals can do to toughen ourselves against their ravages, and we as managers can do to minimize their impact.
Market stability needs biological diversity.
Women are not as stressed by failures in competitive situations as are men; they are more stressed by social problems, with family and relationship.
We have drifted in the intervening centuries from Aristotle’s way of looking at mind and body. Because for Aristotle, the two could not be separated. He believed that mind is of necessity embodied, that if we did not have a body we would not, quite simply, have much to think about.