by John Coates
In the future we might even be able to articulate the specific messages carried by our interoceptive pathways. Our conscious brain may have difficulty doing so, but science can help by intercepting and interpreting these messages. Some day we will be able to listen to our bodies and the subconscious regions of our brains and heed their warnings. Physiological monitoring devices, along with the computer back-up mentioned in the previous chapter, may one day provide human traders with what amounts to a hardened ecto-skeleton that may help them fight against the machines that increasingly dominate the markets.
This type of monitoring may seem futuristic, but many people already engage in it. There is a rapidly growing movement for what is called ‘self-quantifying’, recording one’s own vital signs as a way of cutting through folklore and advertising and pop psychology to our own hard data. People are increasingly using a range of monitors to identify where in their lives the stress is coming from, what causes a bad night’s sleep, what workout delivers the best results. There are even now, in development, many everyday consumer products that can perform real-time health monitoring, such as contact lenses employing bionanotechnology that sample cholesterol, sodium and glucose levels in your tears and transmit this information to a computer. Scientists have proposed a new type of toilet that similarly diagnoses your health based on urine analysis, and toothbrushes that do much the same with saliva.
I see no reason why this sort of physiological monitoring, if it is useful and popular with the public, Olympic athletes and the military, should not find its way onto the trading floor. And it is to the trading floor that we now return, in order to see how the physiology of risk-taking we have surveyed works in practice.
PART III
Seasons of the Market
FIVE
The Thrill of the Search
AN UNEXPECTED MESSAGE
After the brief excitement of the DuPont trade, the floor settles back into the lazy state that has been its lot for the past few days. Martin strolls back from the coffee room and hears nothing on the squawk and sees no hurried movement on any of the trading or sales desks, so his body receives the all-clear and gears down a final notch, returning heart rate and metabolism to a slow idle. The adrenalin dissipates. His vagus nerve gently takes control, and like a mother’s hand on a troubled brow, it smooths away the last ripples of his bodily storm. The half a million dollars Martin has made trickles through his veins like some potent muscle relaxer. An inner glow of peace, goodwill and quiet confidence kindles and radiates. Money can do that.
The mild stress Martin has just experienced has been good for him, because it taxed both body and brain. This sort of effort is just what we are designed to do, so it makes for a satisfying experience. Effort, risk, stress, fear, even pain in moderate doses, are, or should be, our natural state. But just as important, just as vital to our health, the key to continued growth, is what sports physiologists refer to as the recovery period. Once a challenge ends, the fight-or-flight mechanisms should be switched off quickly, for they are metabolically expensive, and the rest-and-digest systems switched on. These recovery periods act much like a good night’s sleep; but unlike the full eight hours doctors recommend, they are typically brief and frequent, like the short breaks in a boxing or tennis match. But no matter how brief, our bodies take advantage of the downtime to rest and repair, and over time these mini-breaks can add up to a healthy body and brain. Should we be denied these downtimes, even very brief ones, even when things are going well, our biology can become unbalanced, leading us into pathological mental and physical states and inappropriate behaviour. Such can happen on Wall Street.
Challenge, recovery, challenge, recovery – that is what toughens us. And that is why this trade has been good for Martin. He has benefited from just such a pattern of stress and recovery and has emerged a stronger – and indeed a richer – person. At this very moment, throughout his body, in a million different war zones, microscopic surgeons and nurses go to work repairing damage to tissues, tending to his every comfort – and brother, does it feel good.
Martin turns down the aisle that leads deep into the hinterland of trading and sales desks, the grand trunk of the trading floor. Normally a speedway of frenzied bankers, today it feels more like the main street of a small town. As he enters the corporate bond department, one of the traders, puzzling over what looks like a credit card statement, looks up and nods his regards. A frisky salesman shadow-boxes as he passes. Walking by the arbitrage desk, Martin intercepts a tennis ball thrown by Logan to Scott. He tosses the ball to Scott, who tells him the brokers are having sushi sent up for lunch. Back at the Treasury desk, located between the arbitrage and mortgage desks, Martin casts an affectionate glance across a trading floor that has given him so much, and listens to its familiar and reassuring sounds.
Martin decides to treat himself to a luxury that is rare on Wall Street – reading parts of the newspaper other than the business section. He puts his feet up on his desk and with satisfaction opens the paper at the arts and review section. Someone down the aisle announces they have extra donuts; a woman on a far-off sales desk lets out an occasional high laugh.
Martin relishes the lazy hours that stretch ahead, but anyone watching him would, after a while, notice him hesitate, consider. As he glances at the screens, a slight tension creases his face and he shifts uncomfortably in his chair. Unbeknownst to Martin’s conscious brain, a subsonic tremor has just shaken the market, and silent shock waves radiate from the screens, reverberating in the cavern of his body. Something is not right. The screens flicker at a different frequency, the matrix of prices dance into a new pattern, like a single turn of a kaleidoscope. Volatility has hardly budged, but the minuscule changes are unexpected, and nothing snaps us to attention faster than the unexpected, something novel emerging out of an indifferent background.
Martin, an Olympic-class hunch athlete, is often the first to sense these things, but others are not far behind. All across the floor the inaudible call from the market receives its echo in the bodies of traders and salespeople. For some of them, muscles tense ever so slightly; for others, pupils dilate and breaths come a bit faster; for still others, stomachs tense and hunger abates. An observer might notice postures straighten, conversations become more animated, hand gestures more abrupt. Few people are yet aware of the changes taking place in their bodies, but the cumulative effect is much like someone turning up the volume on the trading floor. A good manager should sense the budding commotion, see the restlessness. And now, like some large beast stirring from a deep slumber, the trading floor returns to life.
THE MARKET’S MORSE CODE
What was this shock that emanated from the screens? What was it that vibrated pre-consciously in the taut membrane of Martin’s early-warning system? That shock was information, and information manifests itself in the shape of novelty. When the world sends us a message it does so through the language of surprise and discrepancy; and our ears have been tuned to its cadences. There is nothing that fascinates us more, little that agitates the body more completely. Information warns us of danger, prepares us for action, helps us survive. And it enables us to perform that most magical of all tricks – predicting the future.
The link between information and novelty was discovered and brilliantly explained by Claude Shannon, an engineer working at Bell Labs in the 1950s. According to Shannon, the amount of information contained in a signal is proportional to the amount of novelty – or, put another way, the amount of uncertainty – in it. That may seem counter-intuitive. Uncertainty seems the antithesis of information. But what Shannon meant was this: real information should tell us something we do not already know; it should therefore be unpredictable.
Most messages we encounter in everyday life are, however, predictable. Usually we sort of know what is coming next when we read a book or hear someone talk, because most messages contain a lot of noise – that is, words or characters which could be compressed out of the message without impairing its m
eaning. People composing text messages accordingly condense the sentences they want to send, just as people did in the old days when using telegraphs, to eliminate any characters or words that could be predicted, leaving behind only what could not be predicted, the true information content of the message. For example, imagine sending the following text message half an hour after you were expected home: ‘I am late. The car has a flat tire. I will be home in one hour.’ This message, 63 characters long including spaces, contains a lot of redundancy, and can be compressed. To begin with, if you were due home half an hour ago, obviously you are late, so the first sentence can be cut. And obviously it is the car that has a flat tire, what else could it be? So you can drop the reference to it. And obviously it is you who will be home, so the pronoun can be implied rather than stated. Eliminating the redundancy, you send instead: ‘Flat tire. Home 1hr.’ This message, 20 characters long, has been compressed so that it contains only the information your family could not have predicted. If they were to receive it word by word, they could not guess what word would come next. This simple example illustrates the fundamental discovery of Shannon’s information theory: information is synonymous with unpredictability, with novelty. When receiving pure information we are in a state of maximum uncertainty about what comes next.
Our sensory apparatus has been designed to attend almost exclusively to information. It ignores predictable events but orients rapidly to novel ones. The cerebellum provides a nice illustration of this principle. When we plan an action our neo-cortex sends a copy of this plan to the cerebellum, which then dampens or even cancels out the sensation it expects to result. Because of this dampening we are largely unaware of, say, our arms moving back and forth when we walk, or the chafing of our own clothes on our skin. It is also the reason we are unable to tickle ourselves: since we have produced the motion of fingers on ribcage, our cerebellum dampens the expected sensation; we may still feel our fingers on our skin, but we are not surprised, so the tickling has no effect. Why would we want to suppress sensations we expect to come from our own actions? Because doing so proves extraordinarily useful in a control mechanism: if the sensory feedback from an action is exactly what we expect, we do not need to pay attention to it. If however the feedback is other than what we expect, then it carries information: something has gone wrong with our plans, and this information teaches us to calibrate our movements to our intentions.
An extraordinary further illustration of the principle that we attend largely to the unexpected can be found by considering the visual system of the common frog. Evidence suggests that frogs are blind unless something moves in their visual field. Frogs do not, apparently, have any interest in gazing out on their pond just to appreciate its beauty; their blindsight registers objects only when movement indicates the presence of an insect to eat or a threat to escape. The frog’s eye thus presents a pure example of a sensory system doing just what it was built to do – attending exclusively to information.
Human sensory systems work in much the same way. We too lose sight of objects if they do not move, an effect known as Troxler fading, after a nineteenth-century German physiologist who noted that we gradually lose awareness of unchanging visual stimuli, just as we do the constant sound of background traffic. However, we rarely notice fading such as the frog-eye effect, because we move our eyes and head almost continuously, and this makes our visual field move. But you can experience something like it if you have someone hold their hand out to the side of your head, so it occupies the very edge of your peripheral vision. When their hand is motionless you will not see it, yet when they move it you will. This example points to yet another problem – in addition to those surveyed in Chapter 3 – with the commonsense notion that our senses operate like a movie camera, recording non-stop the sights and sounds around us. Troxler fading shows that our senses do not work at all like that. Indeed, it is probably closer to the truth to say that we, like the frog, are built to ignore the world unless something of importance happens.
Such a sensory system admirably reduces demands on our attentional resources, but in the modern world it can also lead to problems. Yes, we are built to attend to novelty, but unfortunately we do not function particularly well in its absence. Without it we can suffer stimulus hunger, and this can lead to a condition among drivers (even, it is claimed, among pilots of commercial aircraft) which would be comical were it not occasionally dangerous, a condition variously called ‘highway hypnosis’ or ‘ the moth effect’. Drivers on long, featureless stretches of road or driving through the night can become so starved for stimulation that they attend almost hypnotically to the rare appearance of a light beside the road, often a police car with lights flashing, and then proceed to drive straight into it.
Information thus holds a strange and powerful attraction for us. When in its presence, we come alive. Entering your home and noticing the furniture out of place; hiking through the woods and hearing the crunch of twigs behind you; reading a mystery novel and realising in a creepy moment that the hero has just used the same turn of phrase as the murderous psycho the police are hunting. In these situations your awareness sharpens and your attention zooms in on the unexpected scene – ‘What the hell!’ your pre-conscious brain utters, and in that very instant your world morphs from an indifferent and impressionistic background into a scene of hyperrealism.
The mechanism operating in your brain at this point is a marvel of chemical and electrical engineering. When the alarm centre of your brain is tripped, neurons in the locus ceruleus, located in the brain stem, boost their firing rate and spray a neuromodulator called noradrenalin throughout your brain (see fig. 8). Neuromodulators are a type of neurotransmitter – the chemicals used to bridge the synaptic gap between neurons so an electrical message can jump from one to the other – but of a very particular kind. They do not participate in any specific brain activity, like doing maths or speaking French or remembering the dates of the Punic Wars; rather they alter the sensitivity of neurons throughout the brain, making them fire more easily or more rapidly. The effect noradrenalin has on neurons can be compared to that of turning up the lights in a room and the volume on a microphone.
That is what is happening to Martin right now. His early-warning system has sprayed noradrenalin throughout his brain, bringing him to a state of high alert, enhancing arousal and vigilance and lowering sensory thresholds, so that his senses are put on edge, enabling him to hear the faintest sound, notice the slightest movement. Reaching the neo-cortex, the noradrenalin also improves the signal-to-noise ratio of incoming sensory data. This is an extremely useful trick. When in a relaxed state Martin scans his environment randomly and widely, just as a radar sweeps 360 degrees, and a low signal-to-noise ratio is to be expected. But when he is surprised by an unexpected event, as he is now, his senses are drawn to a focal point, he filters out background sensations and concentrates instead only on that information relevant to the problem at hand. This radar-enhancing property of the locus ceruleus is partly responsible for what is known as the Cocktail Party Effect, our occasional ability to pick out a voice on the other side of a crowded room. Animals on the hunt, athletes in the heat of competition and traders making money rely on this focused attention and these supernatural senses. As do soldiers in the field: ‘The moment that the first shells whistle over and the air is rent with the explosions,’ explains Erich Maria Remarque, ‘there is suddenly in our veins, in our hands, in our eyes, a tense waiting, a watching, a heightening alertness, a strange sharpening of the senses. The body with one bound is in full readiness.’
The locus ceruleus thus arouses Martin’s brain and, crucially, also his body. It projects its neuronal fibres up into higher reaches of the brain and down through the fight-or-flight nervous system into the body. Here it sprays noradrenalin onto tissues in the heart, arteries, bronchial tubes and adrenal glands (see fig. 8). It brings his body to a state of preparedness, so that once his brain has figured out what threat looms and what action is required, his body is
ready to initiate it. The information the locus ceruleus records is of a low quality; unarticulated, it tells Martin little more than, ‘Pay attention, something’s up!’ The information may be low-grade, but its transmission is fast, and therein lies its value. When a correlation between events breaks down or a new pattern emerges, when something is just not right, chances are it is the locus ceruleus that responds to the change long before conscious awareness. And it trips a very basic alarm, preparing us for fast reactions. It pulls taut the membranes of our recording devices, kindles the fire of our metabolism, and cocks our muscles, placing them on a hair trigger.
Fig. 8. Information and arousal. The locus ceruleus projects noradrenalin up into higher regions of the brain where it makes our senses more acute, and raises the signal-to-noise ratio of incoming information so we can focus on a current threat or opportunity. It also projects down into the body where it triggers the fight-or-flight response. Dopamine-producing cells in the brain stem project to the basal ganglia; one of its target areas here is the nucleus accumbens, often called the thrill centre of the brain. Dopamine encourages us to take risk, to engage in physical activities, like hunting, foraging and trading, that lead to uncertain rewards.
