Great Traders: Risk and Dopamine
What makes a great trader?
Well, according to two neuroeconomists (whatever that means) at Claremont Graduate University, genetics makes the difference between a good and great trader. Specifically, the reward-driven neurotransmitter, dopamine, can play a key role in the medium traders seek between risk and reward.
So what exactly is dopamine? From what I remember in Biology 101, about every type of reward that has been studied increases the level of dopamine transmission in the brain, and a variety of highly addictive drugs, including stimulants like cocaine, act directly on the dopamine system. There is also some evidence that people with extraverted, or reward-seeking personality types tend to show higher levels of dopamine activity than people with introverted personalities.
But having tons of dopamine floating around and taking lots of risk is not the key in career longevity as a trader.
In fact, “This research dispels the popular notion that the most successful Wall Street traders are risk-taking cowboys," said CGU Professor Paul J. Zak, who led the study. "What we see is that traders who are genetically predisposed to be either too risky or not risky enough will not last in the business. They'll either flame out or fade away."
So, extreme risk taking begets bigger losses. Not exactly news to anyone here. But what could be more controversial is the notion of employers testing for dopamine levels during the interview process. As the Wall Street Journal put it today, “Given the massive amounts of money at stake, spending a few hundred dollars on a DNA kit [for a new hire] might strike Wall Street as a particularly wise investment.”
So what do you say? Does a dopamine medium really play into the overall career achievements as a trader? Will there every be a time where Goldman Sachs tests your DNA prior to hiring you?