The Hour Between Dog and Wolf: Risk Taking, Gut Feelings and the Biology of Boom and Bust

This is another of those serendipitous finds, while browsing in the bookstore, that was very readable and instructive. Both because I work in finance (ex-investment banker) and from a martial arts / sports / health perspective there is a lot of material here that expanded my thinking.

The subtitle for the book is called "Risk Taking, Gut Feelings and the Biology of Boom and Bust" and it is by the neuro-scientist and former Wall Street Trader John Coates. In order to piggy back on the seemingly insatiable demand for books on the credit crisis of 2008, most reviews and editorials in major magazines have focused upon the risk taking side of the book and how pressures of trading can change the biological composition of your body, impacting your appetite for risk (success builds a feeling of overconfidence and a greater appetite for risk) thus having the potential to cause booms and busts in stock markets and the broader economy. A substantial part (but not overwhelming) of the book is about finance and trading and author uses a trio of fictional fixed income (bond) traders during the 2008 crisis to illustrate his points, and this keeps the text from becoming too academic or dry.

But what also interested me was the more general topic on how humans are not disembodied brains who make rational decisions, but that our thinking is very much impacted by our body and our senses. There is a lot of analysis here on how the brain regions processing our reasoning skills are intricately tangled up with our motor circuits and are intimately linked to movement. There is also a whole level of activity where there is a feedback loop between our hormones and our thinking, and a lot of this is on a pre-conscious level. Reading the book helps explain gut instincts, and how during the most powerful moments of your life - satisfying moments of flow, of insight, of love and traumatic moments of fear anger and stress- you lose any feeling of the split between mind and body and the two merge as one.

From the perspective of someone who is interested in alternative health and martial arts, there is information here on how humans differ from other animals in that they can learn complex movements which are not instinctual, such as dance, music and martial arts and how these movements are stored in different parts of the brain as we train then to an instinctual level. On how the best traders, who have the quickest perceptions and best "gut feeling" usually are physically quite well developed as the two are intimately linked, with many ex-olympians and jocks on the trading floor. On how winning can influence our testosterone levels and higher testosterone levels prime our bodies to keep winning and this matters in sports (and by extension in one-on-one combat) as well as on the trading floor. On how we can train and improve our sensitivity to what is going on internally in our bodies, to better understand what is going in terms of our stress levels and how it affects our thinking. And also many health tips on managing stress (including the importance of cold water baths and showers), and how small amounts of stress and challenge are actually good for us and our health.

The title of the book comes from the following:

[The hour] between dog and wolf, that is, dusk, when the two cannot be distinguished from each other, suggests a lot of other things besides the time of day ... the hour in which ... every being becomes his own shadow, and thus something other than himself. The hour of metamorphoses, when the people half hope, half fear that a dog will become a wolf. The hour that comes to us from at least as far back as the Middle Ages, when country people believed that the transformation might happen at any moment.

- Jean Genet Prisoner of Love

In summary there is a lot in this book beyond the title and would recommend it to anyone with an interest in science, especially the functioning of the brain and the mind, as well as exercise and health.

This book is basically about how emotional feedback loops trigger change in body chemistry and through that our behavior. The author argues that our brains and bodies are much more integrated than most people believe and that modern neuroscience proves it. You will find in this book a story told through the context of financial trading booms and busts how these feedback loops work. There is a lot of science in this book and it is well argued and convincingly presented.

The Hour Between Dog and Wolf is quite fascinating. We have this idea that our behavior is driven solely or mostly by our choices, choices that we consciously make. Research in the last few decades is making this harder and harder to accept. This book does an excellent job at showing how our behavior is much more complicated and that our body chemistry plays a big part in influencing our brain and our behavior.

I really liked this book and found it fascinating. Its ideas apply to much more than the trading context in which it is set. If you are interested in science, human behavior, or the brain I can easily recommend it.

I read this book after completing my exposition of overcompensation, how a stressor or a random event causes an increase in strength, in excess of what is needed, like a redundancy. I was also looking for evidence of convex reaction to stressor, or the effect of a mathematical property called Jensen's inequality in domains and found it exposed here (in other words, why a combination low dose (most of the time) and high dose (rarely) beats medium dose all the time. The authors presents the evidence for the phenomenon in the following: 1) acute stressors cum recovery beat both absence of stressors and chronic ones (this includes thermal variations); 2) stressors make one stronger (post traumatic growth); 3) risk management is mediated by the deep structures in us, not rational decision-making; 4) winning causes an increase in strength (the latter are more complicated effects of convexity/Jensen's Inequality).
Great book. I ignored the connection to financial markets while reading it. But I learned that when under stress, one should seek the familiar.
Bravo!

This is blatantly unscientific hogwash. Check out his CV, which consists of basically 2 conference proceedings and a single open access (non peer-reviewed!) publication. He obviously "invested" in a "research fellow" position at Cambridge (basically a post doc, easy to get) realizing that the "researcher" title would allow him to capitalize off a load of pseudoscience. Nothing has changed for him - instead of trading stocks with pseudo value, he is pushing pseudoscience. Being in the field, I can tell you that professors, not research fellows, are usually the ones to publish "scientific" books. Also, I can tell you that the buzzwords on his website - cortisol, testosterone, addiction - have absolutely no coherent meaning.

Decades of research already exists on addiction, impulsivity and hormonal variations, their relation to HPA axis, etc, and he pays homage to none of it in his research. Instead, his only two studies - 1.) testosterone levels among 17 sampled men and 2.) finger ratios, are alleged to be convincing biological certainties. This guy went from (allegedly) modeling stochastic processes to performing multiple T-tests in the name of "science?" What a bunch of garbage (or rubbish in the UK). This book should actually be censored.

Breezy and entertaining to read, and some good insights into reptilian and other brain/body inseparableness, but I really didn't believe the strained attempts to tie it all into financial markets/trading. Most bad trades are just plain stupid (looking in hingsight)--as described in Talib's books--for other reasons--not all this pop psychology stuff. The book could also have used a lot of editing (too much repetition and padding).

The Hour between the Dog and the Wolf is about risk taking, the nervous system and our biochemistry and how they all relate to each other in various feedback mechanisms. The book is both a combination of a scientific introduction to the way the nervous system and body work together and a fictional narrative of the trading floor in a bank. The narrative is used to describe the real time emotional changes felt by traders in response to their changing risk and profit environments. The book is informative and readable and I came out of it better understanding myself. The book is split into 4 distinct parts.

The first section is titled Mind and Body in the Financial Markets. The backdrop is the internet bubble and questions of exuberance in markets is pondered. The author introduces testosterone and cortisol as potential active molecules in impacting decision. Basic concepts of mind body separation are included. The author then goes on to describe the mind as facilitating the body. He discusses how if one view our purpose in life as to move, then the mind is just an elaborate mechanism to facilitate that movement more productively. This helps give the platform to understand us as being always being a vehicle for movement and that we should not deny the signals our body sends us.

The second section - Gut Thinking discusses the way our instincts can propogate through the nervous system. He discusses how our body's instincts operate on a much faster speed than our computational thought. This subject matter is similar to that of many behavioural scientists and is akin to Kahneman in fast and slow thinking. The value of relying on instincts is studied and our instincts are shown to be very good at pattern recognition which can fail when we are faced with randomness. The inclusion of our muscle responses to our nervous system and our internal feedbacks helps give an overall view of our various mind body relationships.

The 3rd section Seasons of the Market discusses various market regimes and how our body chemistry in each of those regimes is different. Searching for opportunity, riding waves of profit or enduring catastrophic losses are all discussed via narratives of characters the author uses. It helps make sense of real life situations and how we are all biased agents when it comes down to it. This section is where the author really weaves in the impact on financial decision making.

The author concludes with discussing the difference between various types of people and how environment and activity can affect our instincts and our feedback mechanisms. We all have some plasticity and though we inevitably are impacted by the stresses around us we can handle them differently and experience matters. The author then goes on to give partial solutions to dampening the positive and negative feedback loops our body creates in risk taking behaviour to improve our financial system.

All in all The Hour Between the Dog and the Wolf is a very informative account of the way we work in stressful environments and how those environments affect the way we think and act in an active fashion. I much preferred the scientific explanation instead of the specific impact on trading as the lessons are very broad and are relevant to much more than trading. One does not come out of reading the book having a clear path to more robust financial management as that is extremely challenging but one does come through it with more insight about how we work.

This is a very good book which summarizes Coates' and many other researchers' work on neuroscience to show how the mind and body work together to help us manage success, failure, and stress. The book uses scenes from a trading floor to emphasize the interaction between mind and body, and the key takeaway point is that physiological changes can influence our decision making to a greater extent than previously understood. Although Coates does not spend a lot of time on the subject of economic theory, he does argue briefly that the influence of the body on the mind means that markets are not as rational as idealized in neoclassical economics, and therefore behavioral economics might be a better way of thinking about how markets actually work. I would have liked Coates to spend more time on this topic but the book moves briskly to present a great deal of information in 280 pages.

The book does not focus exclusively on trading, and many chapters feature general discussions of how the mind and body interact to produce expertise in a variety of contexts such as sports. I think the book could have been a bit better organized to help major points stand out from minor points, but overall this is a quality book that provides a good background into recent research in neuroscience.

I wonder if Bernie Madoff is going to read this book. John Coates, the former head of a Wall Street trading desk, delves deep into the neurobiology of risk. Bernie, I think, would stand to be a marvelous case study. Though the financial industry serves as the main example and case study for the biology of human risk taking, Coates's work engages any sort of "risky business." In the end, the reader is left wondering if investing is more evolutionary competition than the "smartest" investor.

In order to honestly engage Coates the reader needs to jettison the notion that the "mind" and "body" are separated. Dualism is nothing new to human history, but the Cartesian dualism has run rampant forcing us into the bizarre idealized mutant. Coates argues that we think with our body, and that our mental life is embodied. That is to say, when we make a decision, we are making a decision to do something. Movement, however it occurs, is deeply connected to the body. To remove our brain, is to cease the body's movement.

So, what does all of this talk about dualism, brains, and Bernie Madoff have to do with anything? More than we might think. The field of neurobiology is growing rapidly, and will surely unearth new discoveries that help us understand, biologically, why we do what we do. But, for the here and now, for the facing of the economic redevelopment this means much. It means that our risk taking behaviors and activities are evolutionary developed.

As I read The Hour I cannot help but wonder if the economy has become a global Colosseum in which all spectators are also warriors. The fight for survival continues, though with computers, "gut thinking," and pricey education. Does this in any way dilute the current economic crisis? The Hour alerts us to our deep-seeded biology. Coates helps the reader to see that thinking we have somehow escaped our animalistic, biological roots ignores too much. We fail to see that investing and risk taking connect to our biology. By understanding this we can not only gain better insight, but also might understand how to capitalize (pun, intended) on the biology of risk taking.

Questions soon seep to the surface as to whether or not neurobiology erases the mystery of gut feelings. When reading The Hour one might soon begin to think that risk and hormones have more control than we might think. The larger point that might be too easily overlooked is Coates's work with resilience. In what, I think, is one of the most important sections is the work around stress mitigation and social support.

In the end, Coates's work deserves another volume. Coates communicates well, but his final section on resilience is entirely too brief. The Hour becomes a work that has created a more educated reader, but not necessarily a more stress-mitigating reader. Though certainly still worth the buy, know that you will more than likely finish The Hour wanting more.

The Hour Between Dog and Wolf takes the fascinating flavors of economics and neurobiology, throws them into a postmodern martini shaker, and pours for the reader a delectable, mind-bending drink. Coates serves one up that will make you shake your head, and ask for more. That is, if you're willing to risk it.

I did not do extensive research before I decided to buy the audio book, Plus NN Taleb's endorsement was good enough for me.

I was expecting a book about trading room war stories as found in "Fooled By Randomness" But was surprised to see a full book on Biology.

Jist of the book is that in order to handle modern day challenges it is not enough to keep your brain active but also your body.

Body and brain are interconnected and problems in the brain manifest in the body.

Unfortunately the trading part of the book is a distraction and did not blend well with the rest of the book so minus one star.

I have never wrote a review on Amazon before, but I felt required to give this book 5 stars. I have read probably 30 books on trading and this is by far the best book to read if you are considering a professional trading career, or any career that includes wins and losses (lawyer, politician, athlete, so on). There is no advice on how to make money from specific trading styles, but if you have experienced the boom/bust cycle in your portfolio, or career, and have been left wondering "how could I have been so stupid?", this book is a MUST READ. Trust me, this book will make/save you more money than any other book in print. You need to read this book over and over again.