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STUDY: Stock Traders More Reckless, Manipulative Than Psychopaths

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A report in Der Spiegel asks why "rogue trading" situations "keep arising in the financial world."

The answer?

Take it away, jungen:

According to a new study at the University of St. Gallen seen by SPIEGEL, one contributing factor may be that stockbrokers' behavior is more reckless and manipulative than that of psychopaths. Researchers at the Swiss research university measured the readiness to cooperate and the egotism of 28 professional traders who took part in computer simulations and intelligence tests. The results, compared with the behavior of psychopaths, exceeded the expectations of the study's co-authors, forensic expert Pascal Scherrer, and Thomas Noll, a lead administrator at the Pöschwies prison north of Zürich.

"Naturally one can't characterize the traders as deranged," Noll says. "But for example, they behaved more egotistically and were more willing to take risks than a group of psychopaths who took the same test."

Oddly enough, the findings virtually mirror the outcome of a 2005 study by a team of researchers from Carnegie Mellon University, Stanford Graduate School of Business, and the University of Iowa.

Wrote Jane Spencer of the Wall Street Journal:

By linking brain science to investment behavior, researchers concluded that people with an impaired ability to experience emotions could actually make better financial decisions than other people under certain circumstances.

The 15 brain-damaged participants that were the focus of the study had normal IQs, and the areas of their brains responsible for logic and cognitive reasoning were intact. But they had lesions in the region of the brain that controls emotions, which inhibited their ability to experience basic feelings such as fear or anxiety. The lesions were due to a range of causes, including stroke and disease, but they impaired the participants' emotional functioning in a similar manner.

The study suggests the participants' lack of emotional responsiveness actually gave them an advantage when they played a simple investment game. The emotionally impaired players were more willing to take gambles that had high payoffs because they lacked fear. Players with undamaged brain wiring, however, were more cautious and reactive during the game, and wound up with less money at the end.

As Robert Hare, professor emeritus at the University of British Columbia and creator of the Psychopathy Checklist, told Fast Company, "I always said that if I wasn't studying psychopaths in prison, I'd do it at the stock exchange."

The traits of a psychopath? As defined by Hervery M. Cleckley in the 1941 book Mask of Sanity:

  • Superficial charm and average intelligence.
  • Absence of delusions and other signs of irrational thinking.
  • Absence of nervousness or neurotic manifestations.
  • Unreliability.
  • Untruthfulness and insincerity.
  • Lack of remorse or shame.
  • Antisocial behavior without apparent compunction.
  • Poor judgement and failure to learn from experience.
  • Pathological egocentricity and incapacity to love.
  • General poverty in major affective reactions.
  • Specific loss of insight.
  • Unresponsiveness in general interpersonal relations.
  • Fantastic and uninviting behavior with drink, and sometimes without.
  • Suicide threats rarely carried out.
  • Sex life impersonal, trivial, and poorly integrated.
  • Failure to follow any life plan.

Superficial charm, insincerity, and lack of remorse or shame? What makes anyone think they'd find these qualities down on Wall Street?
POSITION:  No positions in stocks mentioned.

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