October 23rd, 2001


The biology of "irrational exuberance"


The biology of 'irrational exuberance'

Research finds body responds to market swings

By Gareth Cook, Globe Staff, 10/23/2001

When Alan Greenspan coined the phrase ''irrational exuberance,'' he
was cautiously telling America that investors had begun to create a
stock-market bubble. He was right.

Now it looks like he might have been onto some serious science as

In a yearlong study at a major Boston financial company, researchers
from the Massachusetts Institute of Technology and Boston University
found that professional currency traders react to changing markets not
just with their brains, but also subconsciously - with their whole
bodies. As they sit at their desks moving millions of dollars through
the financial system, their vital signs react almost instantaneously
as prices dip and rise.

They are, in other words, wired to the market.

Like bond traders and stockbrokers, foreign-currency traders are paid
to act rationally - to ignore the waves of emotion that consume
amateur investors. Yet all of the currency traders in the new study
showed a clear physiological response to what the markets did,
experiencing powerful surges - jumps in blood flow, sweating - with
every rally and reverse. A strong emotional reaction was clear in
regions far from the rational mind.

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