Lehman Sisters Wouldn't Have Failed

Because of their biochemical makeup, women are better than men are at managing risk. As a result, female equity managers yield higher returns for their clients and are better at navigating downturns.

Even as high-profile, high-profit professions like medicine and the law have edged toward gender parity, the financial firms on Wall Street continue to be dominated by men. But research indicates that women may be better suited than men, biochemically, to succeed as traders and fund managers.

"It is entirely possible that when it comes to making and losing money, women are less hormonal than men," John Coates, who studies the biochemical underpinnings of financial markets at Cambridge University, told Big Think. "Women would be less hormonally reactive and their risk preferences would be more stable across the business cycle than men's are."

A former Wall Street trader, Coates says his interest in the effects of hormones on trading was sparked by watching the behavior of male traders during the dot-com boom: "They had become delusional, euphoric, had racing thoughts, diminished need for sleep; they were taking way too much risk, getting hornier that usual," he recalls. "It’s not that Wall Street was selecting this type of person, because they weren’t like that before the bubble and they weren’t like that after the bubble. ... I suspected there was a chemical involved."

His research led him to the conclusion that economic bubbles "are a male phenomenon," a result of increased levels of testosterone that contribute to greater and greater confidence and appetite for risk. He says this testosterone boost is due to an evolutionary adaptation shared by males across species called the "Winner's Effect."  Male animals that win a competition are statistically more likely to win in the next round, he says. That's because when two males go into a fight their testosterone levels rise—increasing lean-muscle mass and hemoglobin in their blood (and thus its capacity to carry oxygen).  As well, testosterone also affects the brain, increasing confidence and appetite for risk.  After the competition, the winner comes out with higher levels of testosterone, while the loser comes out with lower levels. “From an evolutionary point of view, if you’ve just lost a fight you probably shouldn’t be looking for another fight,” says Coates. 

As the winning animal goes into the next round, his testosterone levels stay elevated, increasing his confidence and spurring more risk-taking.  "He goes into the next round with an edge," says Coates. "His T levels bump up again, and he goes on this sort of positive feedback loop."

But increased testosterone only increases performance up to a point. "As hormones increase in your body, your performance improves, until you get to what might be called the optimal level of this hormone for performing this task," says Coates. "If the hormone continues to rise, then your performance becomes impaired," he says, adding that overconfidence and poor risk planning can be outcomes of that impairment. 

The same thing holds true for traders, says Coates. "They put on a trade and get it right, their T levels bump up, they become confident and take more risk, until eventually they go overtop this curve, becoming overconfident, delusional, and they put on huge trades with terrible risk-reward tradeoffs. ... And that is precisely what you see in the markets when these bull markets are reaching their peak.” Coates says that because women have roughly 10% the amount of testosterone that men do, increasing the number of women in finance can dampen hormone-driven economic swings.

But it isn’t simply that men are more reckless traders because of testosterone. Other research finds that women are better calibrated, biochemically, to manage risk in a bear market—including the risk central to a return on investment—because of the chemical cortisol.

"People suffering chronic stress and high levels of cortisol feel anxious and the memories they recall change," says Coates.  "Under the influence of high levels of stress hormones, they tend to recall mostly negative precedents," he says.  Men and women produce roughly the same amounts of cortisol, and they are equally as reactive, but they respond to different events differently, says Coates.

"Men's cortisol levels respond very powerfully from competitive situations, and women not so much.  Women's cortisol responses and stress responses seem more powerful from social stressors."  According to this theory, which Coates has begun testing, a male's cortisol-fueled stress response might exacerbate a bear or middling market by responding with skewed memories and anxiety to events, whereas a female risk response would be more stable across a variety of circumstances.

The numbers don't lie, says Coates. "Women have been found over a long period of time to outperform men by up to two percent return—which is a lot," he says. According to BusinessWeek, hedge funds run by women turned an annual rate of return of 9% between 2000 and 2009—versus 5.82% from funds run by men over the same period. A study by U.C. Davis researchers also found that men in the financial industry make 45 percent more trades than their female counterparts do—a gap that reduces their net returns by 2.65 percentage points per year compared with the 1.72 percentage points women lose on trading fees.

So would the recession would have been as bad—or would have happened at all—if women had had a larger presence in the financial sector?

Certainly those who invested with women did better during the depths of the financial crisis; while funds run by men dropped 19%, those run by women were down only 9.6%. And mutual fund company Vanguard published a study in March indicating that men "were much more likely than women to sell their shares at stock market lows. Those sales presumably meant big losses—and missing the start of the market rally," according to the New York Times.

More Resources

— Coates, J. “From molecule to market: steroid hormones and financial risk-taking.”

— Coates, J. “Endogenous steroids and financial risk taking on a London trading floor.” 

— Barber, B., and Odean, T. "Boys Will Be Boys: Gender, Overconfidence, and Common Stock Investment." 

— "Equity Abandonment 2008-2009," report by Vanguard.

— "2010 Top Women Financial Advisors," Barrons.

​There are two kinds of failure – but only one is honorable

Malcolm Gladwell teaches "Get over yourself and get to work" for Big Think Edge.

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Mind & Brain

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Freud is renowned, but his ideas are ill-substantiated

The Oedipal complex, repressed memories, penis envy? Sigmund Freud's ideas are far-reaching, but few have withstood the onslaught of empirical evidence.

Mind & Brain
  • Sigmund Freud stands alongside Charles Darwin and Albert Einstein as one of history's best-known scientists.
  • Despite his claim of creating a new science, Freud's psychoanalysis is unfalsifiable and based on scant empirical evidence.
  • Studies continue to show that Freud's ideas are unfounded, and Freud has come under scrutiny for fabricating his most famous case studies.

Few thinkers are as celebrated as Sigmund Freud, a figure as well-known as Charles Darwin and Albert Einstein. Neurologist and the founder of psychoanalysis, Freud's ideas didn't simply shift the paradigms in academia and psychotherapy. They indelibly disseminated into our cultural consciousness. Ideas like transference, repression, the unconscious iceberg, and the superego are ubiquitous in today's popular discourse.

Despite this renown, Freud's ideas have proven to be ill-substantiated. Worse, it is now believed that Freud himself may have fabricated many of his results, opportunistically disregarding evidence with the conscious aim of promoting preferred beliefs.

"[Freud] really didn't test his ideas," Harold Takooshian, professor of psychology at Fordham University, told ATI. "He was just very persuasive. He said things no one said before, and said them in such a way that people actually moved from their homes to Vienna and study with him."

Unlike Darwin and Einstein, Freud's brand of psychology presents the impression of a scientific endeavor but ultimately lack two of vital scientific components: falsification and empirical evidence.


Freud's therapeutic approach may be unfounded, but at least it was more humane than other therapies of the day. In 1903, this patient is being treated in "auto-conduction cage" as a part of his electrotherapy. (Photo: Wikimedia Commons)

The discipline of psychotherapy is arguably Freud's greatest contribution to psychology. In the post-World War II era, psychoanalysis spread through Western academia, influencing not only psychotherapy but even fields such as literary criticism in profound ways.

The aim of psychoanalysis is to treat mental disorders housed in the patient's psyche. Proponents believe that such conflicts arise between conscious thoughts and unconscious drives and manifest as dreams, blunders, anxiety, depression, or neurosis. To help, therapists attempt to unearth unconscious desires that have been blocked by the mind's defense mechanisms. By raising repressed emotions and memories to the conscious fore, the therapist can liberate and help the patient heal.

That's the idea at least, but the psychoanalytic technique stands on shaky empirical ground. Data leans heavily on a therapist's arbitrary interpretations, offering no safe guards against presuppositions and implicit biases. And the free association method offers not buttress to the idea of unconscious motivation.

Don't get us wrong. Patients have improved and even claimed to be cured thanks to psychoanalytic therapy. However, the lack of methodological rigor means the division between effective treatment and placebo effect is ill-defined.

Repressed memories

Sigmund Freud, circa 1921. (Photo: Wikimedia Commons)

Nor has Freud's concept of repressed memories held up. Many papers and articles have been written to dispel the confusion surrounding repressed (aka dissociated) memories. Their arguments center on two facts of the mind neurologists have become better acquainted with since Freud's day.

First, our memories are malleable, not perfect recordings of events stored on a biological hard drive. People forget things. Childhood memories fade or are revised to suit a preferred narrative. We recall blurry gists rather than clean, sharp images. Physical changes to the brain can result in loss of memory. These realities of our mental slipperiness can easily be misinterpreted under Freud's model as repression of trauma.

Second, people who face trauma and abuse often remember it. The release of stress hormones imprints the experience, strengthening neural connections and rendering it difficult to forget. It's one of the reasons victims continue to suffer long after. As the American Psychological Association points out, there is "little or no empirical support" for dissociated memory theory, and potential occurrences are a rarity, not the norm.

More worryingly, there is evidence that people are vulnerable to constructing false memories (aka pseudomemories). A 1996 study found it could use suggestion to make one-fifth of participants believe in a fictitious childhood memory in which they were lost in a mall. And a 2007 study found that a therapy-based recollection of childhood abuse "was less likely to be corroborated by other evidence than when the memories came without help."

This has led many to wonder if the expectations of psychoanalytic therapy may inadvertently become a self-fulfilling prophecy with some patients.

"The use of various dubious techniques by therapists and counselors aimed at recovering allegedly repressed memories of [trauma] can often produce detailed and horrific false memories," writes Chris French, a professor of psychology at Goldsmiths, University of London. "In fact, there is a consensus among scientists studying memory that traumatic events are more likely to be remembered than forgotten, often leading to post-traumatic stress disorder."

The Oedipal complex

The Blind Oedipus Commending His Children to the Gods by Benigne Gagneraux. (Photo: Wikimedia Commons)

During the phallic stage, children develop fierce erotic feelings for their opposite-sex parent. This desire, in turn, leads them to hate their same-sex parent. Boys wish to replace their father and possess their mother; girls become jealous of their mothers and desire their fathers. Since they can do neither, they repress those feelings for fear of reprisal. If unresolved, the complex can result in neurosis later in life.

That's the Oedipal complex in a nutshell. You'd think such a counterintuitive theory would require strong evidence to back it up, but that isn't the case.

Studies claiming to prove the Oedipal complex look to positive sexual imprinting — that is, the phenomenon in which people choose partners with physical characteristics matching their same-sex parent. For example, a man's wife and mother have the same eye color, or woman's husband and father sport a similar nose.

But such studies don't often show strong correlation. One study reporting "a correction of 92.8 percent between the relative jaw width of a man's mother and that of [his] mates" had to be retracted for factual errors and incorrect analysis. Studies showing causation seem absent from the literature, and as we'll see, the veracity of Freud's own case studies supporting the complex is openly questioned today.

Better supported, yet still hypothetical, is the Westermarck effect. Also called reverse sexual imprinting, the effect predicts that people develop a sexual aversion to those they grow up in close proximity with, as a mean to avoid inbreeding. The effect isn't just shown in parents and siblings; even step-siblings will grow sexual averse to each other if they grow up from early childhood.

An analysis published in Behavioral Ecology and Sociobiology evaluated the literature on human mate choice. The analysis found little evidence for positive imprinting, citing study design flaws and an unwillingness of researchers to seek alternative explanations. In contrast, it found better support for negative sexual imprinting, though it did note the need for further research.

The Freudian slip

Mark notices Deborah enter the office whistling an upbeat tune. He turns to his coworker to say, "Deborah's pretty cheery this morning," but accidentally blunders, "Deborah's pretty cherry this morning." Simple slip up? Not according to Freud, who would label this a parapraxis. Today, it's colloquially known as a "Freudian slip."

"Almost invariably I discover a disturbing influence from something outside of the intended speech," Freud wrote in The Psychopathology of Everyday Life. "The disturbing element is a single unconscious thought, which comes to light through the special blunder."

In the Freudian view, Mark's mistaken word choice resulted from his unconscious desire for Deborah, as evident by the sexually-charged meanings of the word "cherry." But Rob Hartsuiker, a psycholinguist from Ghent University, says that such inferences miss the mark by ignoring how our brains process language.

According to Hartsuiker, our brains organize words by similarity and meaning. First, we must select the word in that network and then process the word's sounds. In this interplay, all sorts of conditions can prevent us from grasping the proper phonemes: inattention, sleepiness, recent activation, and even age. In a study co-authored by Hartsuiker, brain scans showed our minds can recognize and correct for taboo utterances internally.

"This is very typical, and it's also something Freud rather ignored," Hartsuiker told BBC. He added that evidence for true Freudian slips is scant.

Freud's case studies

Sergej Pankejeff, known as the "Wolf Man" in Freud's case study, claimed that Freud's analysis of his condition was "propaganda."

It's worth noting that there is much debate as to the extent that Freud falsified his own case studies. One famous example is the case of the "Wolf Man," real name Sergej Pankejeff. During their sessions, Pankejeff told Freud about a dream in which he was lying in bed and saw white wolves through an open window. Freud interpreted the dream as the manifestation of a repressed trauma. Specifically, he claimed that Pankejeff must have witnessed his parents in coitus.

For Freud this was case closed. He claimed Pankejeff successfully cured and his case as evidence for psychoanalysis's merit. Pankejeff disagreed. He found Freud's interpretation implausible and said that Freud's handling of his story was "propaganda." He remained in therapy on and off for over 60 years.

Many of Freud's other case studies, such "Dora" and "the Rat Man" cases, have come under similar scrutiny.

Sigmund Freud and his legacy

Freud's ideas may not live up to scientific inquiry, but their long shelf-life in film, literature, and criticism has created some fun readings of popular stories. Sometimes a face is just a face, but that face is a murderous phallic symbol. (Photo: Flickr)

Of course, there are many ideas we've left out. Homosexuality originating from arrested sexual development in anal phase? No way. Freudian psychosexual development theory? Unfalsifiable. Women's penis envy? Unfounded and insulting. Men's castration anxiety? Not in the way Freud meant it.

If Freud's legacy is so ill-informed, so unfounded, how did he and his cigars cast such a long shadow over the 20th century? Because there was nothing better to offer at the time.

When Freud came onto the scene, neurology was engaged in a giddy free-for-all. As New Yorker writer Louis Menand points out, the era's treatments included hypnosis, cocaine, hydrotherapy, female castration, and institutionalization. By contemporary standards, it was a horror show (as evident by these "treatments" featuring so prominently in our horror movies).

Psychoanalysis offered a comparably clement and humane alternative. "Freud's theories were like a flashlight in a candle factory," anthropologist Tanya Luhrmann told Menand.

But Freud and his advocates triumph his techniques as a science, and this is wrong. The empirical evidence for his ideas is limited and arbitrary, and his conclusions are unfalsifiable. The theory that explains every possible outcome explains none of them.

With that said, one might consider Freud's ideas to be a proto-science. As astrology heralded astronomy, and alchemy preceded chemistry, so to did Freud's psychoanalysis popularize psychology, paving the way for its more rapid development as a scientific discipline. But like astrology and alchemy, we should recognize Freud's ideas as the historic artifacts they are.

U.S. reacts to New Zealand's gun ban

On Thursday, New Zealand moved to ban an array of semi-automatic guns and firearms components following a mass shooting that killed 50 people.

(Photo by Spencer Platt/Getty Images)
Politics & Current Affairs
  • Gun control supporters are pointing to the ban as an example of swift, decisive action that the U.S. desperately needs.
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