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Genetic Testing for Traders

  
Analysis, Education
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I”ll confess to being mostly skeptical about these quasi-deterministic genetic trait studies — circumstances generally matter so much more — but there is a new study claiming a genetic basis for some aspects of decision-making in risky situations.

Research published today in the Proceedings of the Royal Society B1 is a step towards a more nuanced understanding of how variants of the gene MAOA — which specifies an enzyme, monoamine oxidase-A, that breaks down neurotransmitters such as serotonin — affect financial decisions.

The gene variant MAOA-L is associated with lower production of the enzyme and has been repeatedly linked to risky behavior. Previous studies suggested that carriers of MAOA-L are more likely to lash out when provoked2, for example, or to be more prone to aggression when raised in high-stress environments3.

More here, including a summary of the research, which appears to have been the usual test of a sure versus a gamble for higher gains.

Cost of Mistakes

  
  Education
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Overconfidence is a very serious problem, but you probably don’t think it affects you. That’s the tricky thing with overconfidence: the people who are most overconfident are the ones least likely to recognize it. We tend to think of it as someone else’s problem.

When it comes to investing, however, we all have a problem.

As we become more and more confident we become willing to take on more and more risk. Why? We start seeing risky behavior as, well, less risky. But the reality is that as the level of overconfidence increases, the cost of our mistakes increase as well. (more…)

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