Published: 21st February 2014
A NEW study is trying to discover if some bankers are more likely to make risky trades in the financial markets because they are ‘hardwired’ to do it.
Researchers will monitor participants’ bodies and vital signs while trading is taking place to see if some bankers are predisposed to take multimillion-pound risks.
They will also study people from outside the banking industry to see if they are more prepared to take financial risks in everyday life, such as spending instead of saving.
The academics are using an array of physiological measures and specialist software to read pulse, blood pressure, heartbeat, oxygen, pupil dilation, with phase two of the research using Functional Magnetic Resonance Imaging (fMRI) to intricately map changes in the brain.
The history books are littered with bankers who placed risky trades on the international stock exchanges and markets. The trades sometimes resulted in billions of pounds of losses and, in one case, the closure of a whole bank.
So an insight into what motivates this human behaviour could have implications for future regulation of the banking sector, according to the project leaders.
Neuroeconomic researchers from Manchester Metropolitan University’s (MMU) Accounting, Finance and Economics Department, The University of Keele and the University of Gothenburg, Sweden, will use volunteers during a ‘virtual trading scenario’ for the initial tests, measuring their physiological indicators in the decision making process. The second stage will use fMRI scanning and practising traders and brokers.
“We want to understand how and why people make financial transactions, how and why people save for later life and how much risk people are prepared to take on investments,” said Richard Whittle, Senior Lecturer in Economics at MMU.
“Research in the physiological indicators of risk preference has significant real-world applications, from more realistic financial plans to regulation in the banking sector.”
Michael Smith, a researcher in Medical Science at the University of Gothenburg, added: “Humans make decisions on a daily basis, from what to eat for breakfast to what book to read next to which stock to invest in.
“However, the physiological mechanisms underlying decision making are currently not well understood, and research into this is certainly an interesting and exciting area.”
Part of the research is also looking at how prone other people are to ‘living for today’ rather than planning for the future - if they prefer to spend money now rather than save for a pension, for example.
Preliminary data suggests some people do have risk taking tendencies with money and people who live for the moment struggle to take a long-term view. People with greater physiological responses are seen to make riskier trades in the initial phase of the experiment.
The research project is planned to run for five years using participants in the UK and Europe.