2/5/12

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?

Comments (12)

2/5/12

GATTICA

Get busy living

2/5/12

Nice. You scooped me.

Guess I was one of the genetic prodigies that flamed out, lol.

2/5/12

Haha Gattaca is a great flick.

2/5/12

I don't know, I think there are too many other variables beyond risk taking behavior that determine success. Also, do entry level employees really have that much impact? You would think they would test the waters with a new guy before giving him "massive amounts of money" to blow on poor trading decisions.

Did you fly over my helmet?

2/5/12

Gattaca is my favorite movie of all time.

2/5/12

To quote a wise man: "extraordinary claims require extraordinary evidence."

I'll believe trading success is genetically pre-determined if and when the markets become dominated by groups of clones of PTJ\Soros\choose a legendary trader. Until then, this is sort of hard to believe.

At a broad level, I can believe that trading requires and creates a particular personality type.

2/5/12

Generally I would have expected banks to test out new guys on the client's money before risking their own...

I would have thought that someone's investment philosophy would have a bigger impact than one's DNA. Although I don't know how one would test for this. If I ever set up my own firm, I'll be more interested in how I could indoctrinate new recruits in our successful way of doing things.

For banks though, I'm sure the institutional aspects of risk taking are more for a factor than the dopamine gene. It seems from the article that they define success as longevity in a financial institution/on wall street rather than long term P&L or returns. Maybe the guys with this profile are better suited to being employees i.e. they don't tell their bosses to shove it, or leave for other firms/funds/do their own thing... is there a slave/employee gene?

Gattaca was a great film. Interesting ideas/themes and also fun to watch. I'll watch it again tonight.

2/5/12

Maybe the guys with this profile are better suited to being employees i.e. they don't tell their bosses to shove it, or leave for other firms/funds/do their own thing... is there a slave/employee gene?

This is something I've wondered many times.

"Be a yardstick of quality. Some people aren't used to an environment where excellence is expected." - Jobs

In reply to moneymogul
2/6/12

moneymogul:
Maybe the guys with this profile are better suited to being employees i.e. they don't tell their bosses to shove it, or leave for other firms/funds/do their own thing... is there a slave/employee gene?

This is something I've wondered many times.


If indeed there is a master/slave gene, there must also be a violent revolutionary gene as well, because that's where I fall.

A person's DNA doesn't change, but what genes are actively expressed DOES change based on a variety of factors. In addittion to DNA, there is RNA, mRNA, TRNA, RRNA, and a whole host of other ingredients to the stew. A default or base template is the 'nature' part, but nurture/environment play a large part.

I remember a commercial for milk where they highlight a small skinny dude that grows up to be a man. They were, of course, trying to sell people on the idea that their product was an essential ingredient in that process. They're part right.

I'm fully aware of the role that genetics plays, but I am horrified at the thought of genetic predestination. If it turns out to be real, then I suggest gene therapy. If we can breed neon glow in the dark mice, we can genetically alter the tendancy towards tyranny.

Get busy living

2/6/12

DNA Test? LOL. That's like hearing Blankfein saying he's pro gay marriage. Oh wait....

2/6/12

The idea is not so far-fetched as we might think, check this out: http://www.ted.com/talks/laurie_santos.html

-Turns out "Loss Averseness" may be innate.

In reply to gatsby
2/6/12

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