The Wall Street Gene: What Makes a Top Trader? Researchers Point to Dopamine

By Jonah Lehrer

It’s been a tough few years for Wall Street. Traders got big bonuses for taking foolish risks, while taxpayers got stuck with the bill. But without the financial industry’s machinations, Facebook couldn’t go public, your neighbor couldn’t get a mortgage and we’d all be stuck buying cars with cash.

This raises the obvious question: How can we ensure that Wall Street doesn’t get carried away as it did before the 2008 meltdown? That traders aren’t seduced by foolish risks in the near future?

One approach has been increased governmental regulation, such as the Dodd-Frank Act of 2010, which attempts to reign in the excesses of the financial industry with new rules and restrictions. Only time will tell if this strategy works.

A different approach to reducing the irrationality of Wall Street can be found in new research led by Steve Sapra and Paul Zak, neuroeconomists at Claremont Graduate University. Dr. Zak got the idea for the paper after spending time with leading analysts and traders at a conference. “These guys are a pretty weird bunch,” he says. “They’re very rational and very competitive.”

Dr. Zak wanted to see if he could find the genetic signature of this personality type. Did certain genes correlate with investment success? What’s the difference between the prudent decisions of somebody like Warren Buffett—he’s famously unwilling to invest in bubbles—and the reckless bets that cause so many other traders to lose vast sums of money?

There was reason to think that such a link might exist. Previous research had shown, for instance, that 29% of the variation in whether or not people invest in stocks depends on their DNA. Studies of professional traders had demonstrated that approximately 25% of individual variation in portfolio risk is due to genetics. Other scientists had found correlations between testosterone levels and risk-taking—more hormone equals more risk—and shown that, at least among London traders, men with higher hormone levels in the morning generate larger profits.

Drs. Sapra and Zak began by analyzing the genes of 60 professional traders working in five major Wall Street firms. (They collected the DNA samples in 2008—only three of the firms are still in business.) The scientists focused on a short list of genes that are known to affect the activity of dopamine, a neurotransmitter in the brain.

In recent years, it’s become clear that dopamine helps to regulate decisions involving risk and reward, allowing us to experience both the thrill of getting what we want and the pain of losing it all.

Read the rest here.