Know Thy Opponent

Recent research indicates that more than company profits fuel the stock market.

In a new study [John Coates] reports that traders who start the workday with high testosterone levels make more money on that day than their low-testosterone colleagues do. A hot day on the market sends their levels of the natural steroid up even more, Coates says; under the influence of their own hormones, they start to take bigger risks in hopes of bigger rewards.

Classical economic theory assumes that people make financial decisions in a rational way. But Coates’s finding is part of a growing body of work explaining why, in reality, they often don’t: they’re at the mercy of their biology. This school of thought helps illustrate how economic trends can get out of control, ballooning until they burst. It also suggests one reason why central banking is so tricky: policymakers don’t often take hormones into account. “[Former Federal Reserve chairman] Alan Greenspan spent his whole career trying to control economic bubbles,” says Coates. “I don’t think he realized he was up against steroids.”

…Anecdotally, Coates says that during his Wall Street days he thought that “women traders didn’t seem to be as affected” by irrational exuberance. A 2001 paper in the Quarterly Journal of Economics backs up that observation. “In areas such as finance,” it found, “men are more overconfident than women.” As a result, male stock traders tend to do more buying and selling than female traders do. Each trade costs money, and over the long term that money adds up. In the final calculus, according to the 2001 paper, it’s men, not women, who underperform. (link)

This study highlights one of the overlooked aspects in the gender debate: men and women DO respond to things differently and acknowledging these differences does not make one a gender basher. I know there are individuals who are resistant to this part of the gender equality debate because they feel it undermines their position.

The idea that recognizing the validity of an opponent’s position is a bad thing has hindered so many issues. Employees vs. companies, Israelis vs. Palestinians, citizens vs. governments, rich vs. poor. When we’re in a fight, why are we so unwilling to see the other’s side? Doing so doesn’t require that we agree 100% with our opponent. If anything, knowing and acknowledging the other side’s position puts one in a position of strength. Isn’t knowledge power? When did we decide that this wasn’t the case?


4 Responses to “Know Thy Opponent”

  1. April 16, 2008 at 9:57 am

    Ignorance is not bliss.

    A respected consultant to the creative industry, David Baker of ReCourses, has an open forum where he invites his competitors (respected consultants in their own right) and all his existing/potential clients. At his forum he presents his views and opens the floor for his competitors to present theirs. Which viewpoint is correct? He lets his clients make that call. In my eyes, this puts David in the ultimate position of strength.

  2. April 17, 2008 at 1:05 am

    I agree with your assertion. Understanding how your opponent is seeing things inevitably helps to strengthen your own competitive position.

    However, not everything is a competition. As Caleb mentions, collaboration sometimes trumps competition. Specifically in the case of my employer, we are on the same team, pursuing the same goals. Another example, in America, at least: citizens are actually running government (as administrators and as voters). Hopefully in cases like this, what is good for one is good for the other – since one actually is the other.

    In the gender example you mention, we ignore inherent differences in the genders at our own peril. This reflects an ignorance on the part of those who would pursue total ‘equality’.

    Ultimate equality is, after all, impossible given the simple physical reality of gender morphology. This isn’t a political position, it’s just a biological and physical fact, as you’ve pointed out in earlier posts.

    I personally revel in the differences between the genders. I appreciate the fact that males not only respond to things differently than females, but they also create things differently, they explain things differently, they fix things differently, etc. In trying to understand how each experiences life differently – precisely as you recommend – life becomes more interesting, at least for me.

    My own thinking on gender equality is that it is an unfortunate combination of words – see also global warming :-). What does it mean really? Does it just mean money equality? This seems shallow, but it can be imposed by law, I suppose. However, unless your entire life can be defined by gender inequality, or by money, this does little to enhance life. Either way it’s unfortunate.

    Maybe a more appropriate goal is gender complementarity. Can we admit that men and women aren’t “against” one another, like we were as children in primary school? That we are humans pursuing similar goals and we desperately need one another (physically and otherwise)?

    Thanks for the great post.

  3. 3 Joe T.
    April 26, 2008 at 5:10 am

    Not to deliberately raise an anti-PC flag, but what we now call “gender” we used to call simply “sex”.

    The word gender used to be used primarily to refer to a class of nouns, prepositions, etc. in some languages (like French or Spanish), i.e. masculine or feminine.

    From what I understand, a group of “critical gender theorists” in American academia campaigned to replace the word “sex” with “gender” when referring to male versus female persons.

    Their argument was that people don`t choose their sex, but they choose their gender, and when we refer to a male or a female person, we should take that into consideration and respect the notion that they may choose a different gender from their biological sex.

    While this is certainly possible, and no doubt happens, I would say it`s a sufficiently rare occurrence that we didn`t need to change the usage of an English word over it.

    Regarding the testosterone thing, I often suspected this, too. I suspect that one of the things that broadly distinguishes males from females is the greater tendency of males to take big risks that might actually jeopardize their short-term security, for a possible much larger gain later on.

    Not saying that there aren`t females who will do this, or that all males do it. And I`m not saying by any means that it`s always a good or logical way of acting. Many unnecessary and bloody wars have probably been fought because of the male tendency to put people in danger for a promised long-term gain.

  4. 4 Britt
    April 29, 2008 at 9:06 pm

    @Caleb: I think one of the fastest ways to gain credibility is to leave room to admit you might be wrong and prove willing to hear, although not necessarily agree, with an opposing viewpoint. I suspect the trick is knowing how far to go in either case without appearing noncommittal.

    @Shannon: Like you, I think the argument of equality between the sexes has gone down a dead end. For me, the question of equality boils down to opportunity instead of surety. I don’t want to be denied something because of my gender. For example, if I prove physically capable of doing something (e.g., firefighting), I want to know I have the opportunity to do so. However, I don’t want an exemption if I fail to meet the physical requirements for the role. I also don’t want to be paid less in an equivalent role because I’m female and single versus male and married. Because we’ve gotten caught up in the previous type of equality debate (e.g., physical) it’s distracted from where I think the real issues exist in mental, financial, and social equality.

    @Joe: I appreciate knowing the context of sex vs. gender. I hadn’t heard the explanation behind the switch. While I’d like to believe that women show less blood thirsty tendencies, I can’t ignore the Queens Mary & Elizabeth, along with Catherine the Great and other historically powerful women. They’ve proven equally willing to pursue the bloody path to long-term gain. We may find that power is one the only true gender equalizers.

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