JOHN COATES received his PhD at the University of Cambridge. He worked for Goldman Sachs and Merrill Lynch in New York, trading derivatives. He then ran a derivatives trading desk for Deutsche Bank.
He developed techniques for valuing and arbitraging the tails of probability distributions, and for trading low probability events such as financial crises.
His experience with market bubbles, such as the Dot.com bubble, and with crashes, such as Black Monday, the Asian Financial Crisis, and the Tech Crash, allowed him to observe first-hand the often unstable behaviour of traders. He suspected that the waves of irrational exuberance and pessimism destabilising the financial markets may be driven by physiological changes taking place within traders as they make or lose money and as market volatility rises and falls.
He has been testing the hypothesis that alterations within traders’ physiology cause their risk preferences to shift systematically across the cycle, exaggerating the peaks and troughs. To do so he has been monitoring the endocrine and autonomic nervous systems of traders on a trading floor in the City of London. These physiological systems affect the moods we experience, the memories we store and recall, and the behaviour we display in competitive and risk-taking situations. He is also looking at the different styles of risk taking employed by men and women.
He complements this field work with behavioural experiments set in the lab and in artificial asset markets.