Christopher: We blame Wall Street crashes on greed, complexity, or bad math. But what if the real culprit is hiding in plain sight—inside the traders' own bodies? What if a market bubble is less a financial event, and more a biological one? Lucas: Whoa, that's a bold claim. You're saying the chaos of the stock market is basically a symptom of our biology running wild? That feels like letting a lot of people off the hook. Christopher: It's a provocative idea, and it's the explosive premise of The Hour Between Dog and Wolf by John Coates. Lucas: And this guy isn't just an academic throwing theories around. He was a Wall Street trader for years at places like Goldman Sachs before he went back to school to become a neuroscientist. He literally lived in the belly of the beast and then went to the lab to figure out what was going on. Christopher: Exactly. He was there for the dot-com bubble, saw the irrationality firsthand, and decided to test if hormones were the missing piece of the puzzle. His work was shortlisted for major awards, like the Financial Times Business Book of the Year, but it's also pretty controversial, as you can imagine. Lucas: I can already see why. So where do we even start with this? How does our biology supposedly create a financial bubble?

Christopher: It starts with a phenomenon Coates calls the "winner effect." And to understand it, we have to go back to the late 1990s, during the dot-com bubble. Lucas: Ah, the era of pets.com and socks delivered by puppets. I remember the stories. Pure mania. Christopher: Pure mania is the perfect description. The Nasdaq index, which was mostly tech stocks, went from under 600 in the early '90s to over 5,000 by the year 2000. People were pouring money into companies that had no profits, no solid business plan, just a trendy concept and a ".com" at the end of their name. Lucas: And the classic financial metrics—like, does this company actually make money?—were just thrown out the window. Christopher: Completely. Legendary investors who bet against the trend, who said this was irrational, were forced into retirement. They couldn't stay solvent long enough for the market to return to sanity. The feeling on trading floors was pure euphoria. Traders felt omnipotent, like they couldn't lose. Lucas: Okay, so that's the scene. How does biology explain this mass delusion? Christopher: Coates argues that this wasn't just a psychological state; it was a physiological one. When traders go on a winning streak, their bodies react. Specifically, their testosterone levels rise. This is the "winner effect." It's been observed in animals for decades—two rams fight, the winner gets a testosterone surge, making him more aggressive and confident for the next fight. Lucas: Hold on. Are you saying traders are basically just rams butting heads on a trading floor? That sounds a little… simplistic. Christopher: It sounds that way, but the evidence is startling. Coates points to a fascinating personal account from the writer Andrew Sullivan, who took testosterone injections for medical reasons. He described the feeling as a "deep surge of energy," making him feel "braced and ready for anything." His judgment became more impulsive, his attention span shorter. Lucas: That sounds exactly like the stereotype of a coked-up, risk-loving trader from the movies. Christopher: It's a very similar chemical profile. And Coates's own research provided the hard data. He and his team went onto a real trading floor in London and took saliva samples from traders to measure their hormones. Lucas: Seriously? They were swabbing traders' mouths while they were making million-dollar bets? Christopher: They were. And they found two incredible things. First, on days when traders made an above-average profit, their testosterone levels were significantly higher. Second, and this is the mind-blower, a trader's morning testosterone level could actually predict how much money they would make that afternoon. Lucas: No way. So a higher testosterone level in the morning meant they were more likely to be profitable later? Christopher: Yes. The hormone was priming them for risk-taking, increasing their confidence, and making them more decisive. It was acting like a performance-enhancing drug that their own bodies were producing in response to success. This creates a dangerous feedback loop. You win, your testosterone goes up. The higher testosterone makes you take more risks and feel more confident, so you win again. Your testosterone goes up even more. Lucas: And that loop, repeated across thousands oftraders, is what inflates a bubble. It's not just greed; it's a collective hormonal surge. Irrational exuberance is literally a chemical state. Christopher: Precisely. Coates calls testosterone the "molecule of irrational exuberance." It's the biological fuel that turns a healthy market rally into a dangerously unstable bubble, where everyone feels like a genius and no one can see the cliff they're running towards.

Lucas: That explains the high, but every trader knows the high doesn't last. What happens when the market turns? Does biology explain the crash, too? Christopher: It does, and it's the dark flip side of the same coin. If testosterone is the fuel for the boom, then a different hormone, cortisol, is the fuel for the bust. Cortisol is the body's main stress hormone. Lucas: I think we've all felt that one. The hormone of deadlines, bad news, and public speaking. Christopher: Exactly. And on a trading floor, the three big triggers for a stress response are novelty, uncertainty, and uncontrollability. A market crash is the perfect storm of all three. Coates tells the story of a trader he calls Scott during the early days of the 2007 credit crisis. Lucas: This is just before the big meltdown, right? Christopher: Yes. The mortgage market is starting to look shaky. Scott, using some technical charting tools, convinces himself that the market has hit a bottom. He sees a pattern where there isn't one and makes a huge bet, buying $200 million of a mortgage index. For a moment, it looks like he's right. The market ticks up. Lucas: The winner effect kicking in. He feels like a genius. Christopher: For a second. Then a rumor hits the floor about a mortgage originator having liquidity problems. The market doesn't just fall; it evaporates. The price plummets. Scott tries to sell, but there are no buyers. He's trapped. He's losing millions of dollars a minute, and there is absolutely nothing he can do about it. It's the definition of uncontrollability. Lucas: Oh man, I can feel my own stomach clenching just hearing that. What happens to his body? Christopher: His body goes into a full-blown stress response. The amygdala, the brain's alarm system, starts screaming. His system is flooded with cortisol. His heart pounds, his breathing gets shallow, but most importantly, his brain starts to shut down. He can't concentrate. His boss is yelling at him to cut the position, but he's just staring at the screen, paralyzed. Lucas: It’s like the classic 'deer in the headlights' phenomenon. Christopher: It's exactly that. The stress response is an ancient system. It evolved to help our ancestors deal with a lion on the savanna—a short, intense, physical threat. It was not designed to handle the chronic, abstract, uncontrollable stress of watching your career and fortune get wiped out on a computer screen for hours on end. Lucas: So our bodies are reacting to a falling stock ticker the same way they'd react to a predator trying to eat us. Christopher: And the consequences are devastating. Chronic exposure to cortisol actually damages the brain, particularly the hippocampus, which is crucial for memory and context. It makes you see danger everywhere. You start connecting dots that aren't there. Coates compares it to soldiers in the trenches of World War I, who, deprived of reliable information and under constant threat, started believing in rumors of wraithlike spies and angels in the sky. Lucas: So the stressed trader becomes paranoid and starts seeing phantom threats in the market data. Christopher: Exactly. And worse, it leads to a state called "learned helplessness." After repeated, uncontrollable punishment, the body just gives up. It becomes profoundly risk-averse. So, the very traders who were irrationally exuberant on the way up become irrationally pessimistic on the way down. They're so terrified of losing more money that they sell everything at the bottom, turning a market correction into a full-blown crash. Lucas: So the same biological mechanism that creates the bubble also accelerates its collapse. It's a perfect, self-destructing cycle. Christopher: It's a physiological feedback loop from hell. Market losses and volatility cause a cortisol surge, which causes risk-aversion and panic selling, which causes more market losses, which causes more cortisol. Coates argues that cortisol is the "molecule of irrational pessimism."

Lucas: This all sounds pretty bleak. Are we just doomed to be puppets of our hormones, swinging between testosterone-fueled mania and cortisol-driven panic? Can we do anything about it? Christopher: This is where the book gets really fascinating, and also where it wades into some controversial territory. Coates proposes a two-pronged approach: toughening the individual and changing the system. Lucas: 'Toughening the individual.' That sounds like something a drill sergeant would say. What does it mean in a biological sense? Christopher: It's about training your body's stress response, much like an athlete trains their muscles. Research shows that exposure to acute, manageable stress, followed by recovery, can actually make your stress response more efficient. You produce a quick, powerful burst of adrenaline to deal with a challenge, but your cortisol levels don't spiral out of control. It's about welcoming a challenge instead of dreading a threat. Things like regular, intense exercise can literally build a more resilient physiology. Lucas: Okay, so that's the individual part. But what about the system? You can't just tell Wall Street to go to the gym more. Christopher: No, and this is where the proposals get radical. He argues we need to change the environment that creates these hormonal tides. For example, look at bonuses. He uses a simple analogy: the Tortoise and the Hare. Lucas: I think I know this one. Christopher: The Tortoise trader makes the bank a steady $10 million a year for five years. The Hare trader makes a spectacular $100 million a year for four years, taking huge risks, but in the fifth year, he blows up and loses $500 million. Under the current annual bonus system, the Hare walks away with $80 million in bonuses, while the bank has lost $100 million. The Tortoise, who actually made the bank money, gets a fraction of that. Lucas: That's insane. The system literally incentivizes the Hare's reckless, bubble-and-bust behavior. Christopher: Precisely. So Coates suggests structuring bonuses over a full business cycle, maybe four or five years. That would reward the Tortoise's stable performance and disincentivize the Hare's wild swings. But his most provocative idea is about who we hire. Lucas: Let me guess. This is where the gender and age discussion comes in. Christopher: It is. He argues that financial markets suffer from a lack of biological diversity. They are overwhelmingly dominated by young men, a demographic with the highest testosterone levels and the most sensitive hormonal feedback loops. Lucas: Wait, so the solution is to hire more women and older men because their biology is different? Christopher: That's his argument. And there's data to back it up. Studies have shown that female investors, on average, outperform male investors. Not because they're inherently "smarter," but because they tend to trade less frequently. They're less susceptible to the overconfidence fueled by testosterone, so they don't churn their accounts and rack up transaction costs. Lucas: That feels like a minefield. Isn't that a bit... reductionist? Or even sexist, to say 'hire women because they're less hormonal'? Christopher: It's a valid critique, and the book has been criticized for it. But Coates's point is more nuanced. It's not that one biology is "better" than another. It's that a system composed of only one type of biology is inherently unstable. He uses this incredible analogy of rogue elephants in a South African park. Young male elephants, when isolated from their elders, would have their testosterone surge and go on destructive rampages. The park rangers' solution? They introduced one single, older bull elephant. His presence alone was enough to calm the young rogues down. Lucas: Wow. So the idea is that a trading floor needs more "elder bulls"—and women—to provide a kind of physiological ballast and keep the young bucks from running wild. Christopher: Exactly. A diversity of biological responses—some more aggressive, some more cautious, some more long-term focused—creates a more stable ecosystem. It dampens the violent swings from euphoria to panic.

Lucas: So the big picture here is that the financial market isn't some abstract machine running on logic and algorithms. It's a biological ecosystem, with hormonal tides that create booms and busts. It's messy, human, and deeply physical. Christopher: It is. And it forces us to ask a profound question that goes way beyond finance. If we want a stable economy, or even just a more stable life, do we need to stop just managing money and start managing our own biology? The ancient Greeks had the inscription "Know Thyself" at the Temple of Delphi. This book suggests that in the 21st century, 'knowing thyself' means understanding that you are a cocktail of ancient hormones reacting to a digital world. Lucas: That's a huge thought. It reframes so much of what we call 'rationality' or 'willpower' as a negotiation with our own physiology. We'd love to hear what you all think. Does this change how you see the market, or even your own reactions to stress and success? Let us know on our socials. Christopher: This is Aibrary, signing off.