The Hour Between Dog and Wolf

The hour between dog and wolf is a fascinating view of the financial world through the lens of biology. Coates describes a myriad of ways that our behavior and actions are influenced by bodily processes that happen under the level of consciousness. Then he proceeds to lay out his argument that financial bubbles are the result of a vicious cycle that consists of two phases. On the way up traders win often, each win increases the body's levels of testosterone and norepinephrine which leads to increased confidence and riskier and riskier trades. This can't last forever, and when the bubble pops many traders experience a spate of losses, which reduce the levels of the aforementioned hormones and increase cortisol levels. This glut of cortisol (you might know it as the “stress hormone”) causes traders to ignore appropriately risky opportunities and the resulting lack of investment throws the market into a recession.