Traders need training to avoid risky business
Risk managers should coach Wall Street traders like athletes, according to research by a senior fellow at Cambridge Judge Business School, Dr John Coates.
Coates said rather than supervise traders, risk managers should force breaks when an individual is too highly affected by their biology.
Gut feelings and quick impulses drive traders to take risks, but their biology can also wreak havoc on the economy, he said.
Traders who take too much risk during a bubble or winning streak could be chemically driven by "the molecule of irrational exuberance", according to Coates.
The way human bodies behave when taking a financial risk is the same as an Olympic athlete preparing for a big race, according to Coates' research.
He said the "winner effect" - rising levels of testosterone that drove animals to take more risks, become more confident, increase haemoglobin and increase oxygen content - was present in all people, particularly athletes and traders.
Coates said when traders and the market crashed, the result was "learned helplessness" - a debilitating condition accompanied by fatigue and chronic stress.
The research has been compiled in a book that also explores risk-taking behaviour among other professions.
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