The Neurobiology of Market Madness

We were supposed to be living in a rational world. According to neoclassical economics, people are “rational agents” who logically assess their own best interests and then act accordingly. Like cogs in a Swiss watch, their behavior can be predicted and modeled.

Thanks to the world’s ongoing economic paroxysms that view has largely gone out the window.  Since 2007, everyone – investors, consumers, management— has seemingly jumped from panic to euphoria and now back to panic again.  The economy not as a mathematical system so much as a collective madness.

John Coates is a uniquely well positioned to understand what’s going on. He spent 12 years as a trader in London and New York, working first for Goldman Sachs and then Deutsche Bank. What he saw in real life was totally at odds with economic theory. “It was the dot com bubble,” he recalls. “People had classic, clinical symptoms of mania. They were delusional, euphoric, over-confident — you couldn’t get them to shut up.”

Most traders worth their salt would have figured out how to turn this insight into a a play that would make them a killing on the market. But Coates wasn’t that guy. Instead of stoking his greed, it fueled his curiosity. He wondered: how does what physically goes on inside the brain and body affect the market’s ups and downs? So Coates ditched Wall Street, went back to school, and wound up a research professor in Cambridge University’s neuroscience department. Then, armed with scientific apparatus, he went back to the trading floor. He measured the hormone levels of professional traders as they went about their business, buying and selling. And what he found gave him a surprising insight.

Filed under: Business, Economics

My Strange Journey With Antivirus Guru John McAfee

As I stepped from the rickety wooden dock onto John McAfee’s motorboat, I felt like I was in a scene straight out of Heart of Darkness. Here I was, a visitor in a strange land, embarking on a journey up a tropical river in search of the truth about a larger-than-life figure living in self-imposed exile.

“Are we going to find Kurtz?” I joked.

McAfee laughed and gunned the engine. The mood turned more Apocalypse Now, as he cranked the boat up Belize’s twisting New River, our wake surging through the mangrove roots on the bank. Every quarter mile or so the unmarked channel forked, and McAfee assured me that if we took the wrong one we would wind up in Guatemala, hopelessly lost, or else stuck for good, with no way out except to wade mile after mile through nearly impenetrable, crocodile-infested swamp.

Only later would I realize just how truly Kurtz-like the mission had already become. On that day, what had started out as a sympathetic profile for Fast Company would slowly evolve into something more like a take-down, as I realized that McAfee’s position in Belize was much more compromised than I had imagined. Finally I understood why he had kept asking–playfully, I had thought–whether my story was going to be an expose. As the facts emerged, it became clear that I would have to write just that.

What I still don’t understand is whether an expose was what he wanted all along. Did he, like Kurtz, crave the blade? He had, after all, kept bringing up the idea of the expose. And he kept scattering clues of dark import in my path. But why? Was it that he craved the publicity? Was he diverting my attention away from something else? Or did he have some other plan altogether? Given that the subject is an avowed prankster like John McAfee, we may never know the whole truth.

Read the story here.

Follow me on Twitter: @extremefear.

Filed under: Business

Murder and Profit in Mexico’s Most Dangerous City

At first, Gerry and Margarita Licon only saw the benefits of doing business on the US-Mexico border. Co-founders of Licon Engineering, a construction management and engineering services company, the couple expanded their business from two employees to 38 in their first seven years in business, and took their revenues to more than $5 million. It seemed like they had the best of both worlds. From their headquarters in El Paso, Texas, they had access to US government contracts with set-asides for minorities and small businesses. Across the border in Ciudad Juarez, they could tap low labor costs and an ever-growing customer base in the manufacturing sector.

Business was so good that they weren’t particularly concerned when drug-gang warfare sent the murder rate in Juarez skyrocketing. By early 2008, six or seven people a day were being killed. Gunmen riddled a pickup truck with 31 bullets, killing the driver and her 9-year-old girl passenger. A man kidnaped from his front yard in El Paso turned up dismembered in Juarez.  Seventeen patients in a drug rehab center were lined up agains the wall and shot to death. The scale of the slaughter led Time magazine to dub Juarez “The Most Dangerous City in the Americas.”

Like many living and working in the border region, the Licons still didn’t think at this point that the crime wave posed a direct threat to them personally. The killings seemed to be strictly limited to those involved in the drug trade. But as the violence escalated, the criminality expanded. Kidnaping and extortion also became endemic.

And on an afternoon in March 2008, Gerry Licon experienced the dark side of Juarez for himself.

Filed under: Business

Top 7 Management Secrets of Blackbeard the Pirate

Peter Leeson does not talk like a pirate. But the George Mason University economist has figured out how to think like one. In his book The Invisible Hook, Leeson argues that, despite their reputation as anarchic ne’er-do-wells, 18th-century pirates roamed the seas in pursuit of rational economic goals. In fact, they had a lot in common with small business people of today. “They were profit-motivated,” Leeson says, “and they confronted obstacles that a lot of modern small businesses also confront in their attempt to pursue profits.” There’s plenty that today’s managers can learn from the scurvy dogs of yore. Here are the top seven tips:

Filed under: Business