Jinfo BlogChemistry lesson

Tuesday, 15th April 2008

By Tim Buckley Owen

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Sorry to return to the issue of the expendability of humankind so soon – take a look at http://web.vivavip.com/forum/LiveWire/read.php?i=5233 for recent coverage. But the evidence seems to be growing that the human brain is quite extraordinarily ill suited for certain kinds of business decision. It obviously makes sense to leave many of the decisions that rely on interpreting large quantities of performance data to fact-based computer analysis systems, rather than flawed and emotional human brains. So it’s no surprise to find Gartner predicting http://www.gartner.com/it/page.jsp?id=636310 that spending on business intelligence is likely to grow by 11% this year – recession or no recession. BI systems have been a top priority with chief information officers for three years running now, Gartner reports. Even though many CIOs may have escape strategies if a slowdown really starts to hit their budgets, there’s no evidence currently of their enthusiasm for such systems diminishing. The knowledge that humans make mistakes through tiredness and loss of concentration is as old as humankind itself. But when we find them also making catastrophic errors through exercise of the very energy and drive to succeed that distinguishes us from machines, that’s altogether more worrying. In an article published recently by the National Academy of Sciences (abstract at http://www.pnas.org/cgi/content/abstract/0704025105v1), Professor Joe Herbert and Dr John Coates, both of Cambridge University, analysed the quantities of two naturally occurring substances – testosterone and cortisol – in male traders in the City of London. Not surprisingly, they found that their testosterone levels were higher when traders had had a good day, while their cortisol, which is associated with risk, went up when their trading results were variable or the market was volatile. But the crunch came with the observation that both hormones were known to have cognitive and behavioural effects – so if their high levels were to persist or increase as market volatility rose, they could actually affect a trader’s ability to engage in rational choice. In extreme circumstances, excess testosterone could turn their risk taking into an addiction, whereas excess cortisol could induce caution so extreme that traders would actively avoid risk, potentially worsening any downturn. Such observations would go a long way towards explaining the headlong trade in potentially risky repackaged debt, followed by the near complete seizure of the markets once the trade started to unravel. ‘Economics has to consider the physiology of investors, not just their rationality,’ Dr Coates told the BBC http://news.bbc.co.uk/1/hi/health/7342923.stm. Corporate information professionals may operate a very long way away from the trading floor. But if we are to survive and thrive as humans in the face of automated decision making, it would probably do no harm to understand at least a little bit of the chemistry underlying what we do.

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