Some on the Street like to talk about how making money is “in their DNA.”But it’s always surprising to see what turns up when real scientists actually look at traders’ chromosomes.
In the latest such study (via Wall Street Journal), two researchers at Claremont Graduate University’s centre for Neuroeconomics Studies found that the most successful traders had a “moderate” amount of dopamine — not too much, but not too little.
The study profiled 60 New York City-based institutional traders, looking at whether certain alleles (how genes are expressed) are more common in successful traders than a control group.
They used a simple but intriguing measure of success: tenure on the Street. analysing returns, they argued, would not provide enough accuracy since returns depend on a host of factors. Instead, they reckoned that longevity would correlate with an ability to “weigh risk and reward, rather than [take] excessive risks.”
They found that traders do indeed have more elevated levels of dopamine than the general population, but also have greater levels of genes that control risk behaviour.
But there’s hope: They also found the dopamine system can be trained to better assess risk and reward in the context of trading.
Their conclusion: the loudest guy in the room is not necessarily the best:
Our results suggest that using a history of risk-taking and competitive behaviours when hiring traders could be a mistake, though this is often done. Having too little or too much risk-aversion is not associated with success by those in our sample; rather taking a balanced level of risk appears to be optimal.