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Human gorillas chest-thump in US testosterone territory

There’s been a little bit of chest beating of the gorilla type in the US, on both the political and finance sides of the fence. I can’t help thinking the testosterone levels are getting a little out of control and some of the behaviour has been more about protecting territory rather than acting in the best interests of the electorate, clients, beneficiaries, or neighbours.

The argument over whether the S&P downgrade of the long-term US rating was justified has been thrashed to death and I’m not going to discuss it here. But there are a few territorial elements to the timeliness of the decision, and the subsequent commentary around it that are worth observing.

A friend of mine believes that despite the best intentions, and wishes, of the more evolved of the male species, men can’t escape the fact that territorial instinct can dominate behaviour (or so he says).

Releasing the downgrade of the US so soon after the congressional leaders agreed to the debt ceiling has made the whole exercise look a bit like a PR stunt for S&P. In fact on closer examination, it looks like a territorial grab. Certainly by taking action, where Fitch and Moody’s didn’t, they have set themselves out from the pack.

Maybe S&P’s assessment – that the US fiscal consolidation plan falls short of what they view as necessary to stabilise the government’s medium-term debt dynamics – is accurate. PIMCO’s managing director, Bill Gross, says so.

In an interview with Bloomberg TV, Gross said: “S&P demonstrated some spine, they finally got it right. They spoke of a dysfunctional political system. They spoke of deficits as far as the eye can see. They are enforcing some discipline here.”

But what should Gross care? He’s been having a go at the ratings agencies for years, a point he admitted in the Bloomberg interview.

In July 2007 he described the role of ratings services in the sub-prime crisis: “Many of these good-looking girls are not high-class assets worth 100 cents on the dollar. You were wooed, Mr Moody’s and Mr Poor’s, by the makeup, those six-inch hooker heels and a ‘tramp stamp’.”

In a May 2010 article he went a little further: “Tramp stamp and hooker heels do not begin to describe the sordid, nonsensical role that the rating services performed in perpetrating and perpetuating the subprime craze, as well as reflecting the general deterioration of investment common sense during the past several decades.” Why has Gross changed his tack, what territory is he trying to protect?

(In that same 2010 article Gross said; “…common sense cannot be taught. It’s like sex appeal – you either have it or you don’t, although both are subject to relative judgments of the observer.”)

The territorial instinct is but one of the underlying testosterone characteristics that dominate the finance industry.

A June 19 article in the UK’s Guardian paper entitled, “Testosterone and high finance do not mix”, is a fascinating look at the study of neuroeconomics – which combines neurobiology, brain chemistry, behavioural psychology and traditional economic models – and the effect gender may have on decision making.

The author, Tim Adams, outlines a study by Cambridge researchers which found that, like most chemicals, testosterone has an inverted U-shape response curve. In the context of the “winner effect”, he said, “as a man starts winning the testosterone levels start rising and you get sharper and more focused until you reach an optimum. The thing is, if you keep winning, your testosterone goes past that peak and sliding down the other side. You start doing stupid things.”

The researchers went on to test this further on a male sample, and found that “testosterone impaired the risk assessment of traders”, and more interesting that “a trader’s morning testosterone level could be used to predict his day’s profitability”.

One of Cambridge’s researchers, John Coates, went on to write some more articles that suggested if “the winner effect was right, it was possible that bubbles were an entirely young male phenomenon”.

“We know that opinion diversity is crucial to stable markets. What no one talks about is endocrine diversity, a diversity of hormones. The billion-dollar question is how to achieve it,” he said.

This, then, opens an entirely new debate and discussion on the diversity of skills women could bring to the board table, trading floor, House of Parliament (it’s worth pointing out that academic evidence shows companies with women on their boards have higher return on equity than those without).

But what can probably be agreed is that men and women, instinctively, act very differently.

Of course men only defend their territory, fight each other, beat their chests, for one reason. But what they don’t seem to know, at least from where I stand, is most women don’t care.


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