Giving the finger to Harriet Harman: part 3
One reason why the scientists concerned considered that trading in financial markets was a good basis for this study was a mixture of the ease of assessing both the skills involved and the data. (This is not to do a disservice to the clever and painstaking way that the data was handled in the survey, more a reflection of the fact that this type of data allows comparisons which are genuine ones uninfluenced by outside factors). Traders in the markets are essentially placing instant bets in rapidly changing markets. These markets are not based upon long-term investment decisions. They are based upon instant decisions about where the market is moving, often where quick reactions to information displayed on screen are required whilst noisy bedlam is occurring all around. Traders are looking for small price discrepancies which they can profit from, whether within markets or between markets. These opportunities may literally only be available for a few seconds, so reaction time, willingness to back judgment instantaneously or almost instantaneously, and willingness to back judgment in a sufficient amount to make a substantial profit (at the same time as risking loss) are all crucial to success. The survey described the physical demeanour of traders as "much like a tennis player at net."
These traders are therefore specifically living on their wits in a market where the "players" are operating on a level playing field and so speed, decisiveness and ability to spot trends quickly (and in particular before the competitors) are all crucial. Cerebral consideration of long-term investment trends is unnecessary, as are interpersonal skills to build long-term client relationships. Other strategic investors running funds will try to analyse and profit from market trends, and/or obtain business from particular sources. The type of traders being looked at in the survey are not looking at long-term trends, they are looking to capitalise on the short-term trends that throw up opportunity for profit. It is therefore very easy to assess who are the ones who are good at this, because you can see it in their profit and loss figures. These are figures derived from data kept by the firm, so are not individual's boasts of what they made but their exact record. That is essentially the basis upon which the survey proceeded, looking at a 20 month period.
The survey found that on average an experienced trader makes 9.6 times the profit of an inexperienced one, and traders with the lowest 2d:4d ratio made 11 times the profit of traders with the highest 2d:4d ratio. Turning then just to experienced traders, traders with a low 2d:4d made an average of 5.4 times as much profit as those with high 2d:4d ratios. Those undertaking the survey were alive to the risk that the period of the survey might be one where those who took extreme risks did extraordinarily well, but that over a period of time those might be the very people who then lost an absolute fortune. However, since this is a paradigm market in which those who fail to make enough money or who make losses end up being removed, (since success or failure is easy to assess his because it comes down simply to a question of profit) one would expect experience and longevity to indicate an ability to thrive in all sorts of market conditions. The survey found that those with a lower 2d:4d ratio were more likely to be experienced. There was no data to analyse why this was (Success? Motivation? Enjoyment of the thrill of what they were doing giving them a greater desire to carry on for longer?). However it must at the very least be consistent with their having been sufficiently successful, because otherwise they would have been removed from the market anyway.
This shows pretty conclusively that biological traits are relevant to success or ability in certain types of occupation (although it is important to note that this does not mean at all that those persons are necessarily successful in other spheres of operation: this is not and should not be taken as a ratio which predicts success generally, indeed it is perfectly possible that in various career scenarios these traits may be damaging rather than helpful). We will look at this further next week, including precisely how this was expressed and analysed in physiological terms.