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on June 18, 2012
This is another of those serendipitous finds, while browsing in the bookstore, that was very readable and instructive. Both because I work in finance (ex-investment banker) and from a martial arts / sports / health perspective there is a lot of material here that expanded my thinking.

The subtitle for the book is called "Risk Taking, Gut Feelings and the Biology of Boom and Bust" and it is by the neuro-scientist and former Wall Street Trader John Coates. In order to piggy back on the seemingly insatiable demand for books on the credit crisis of 2008, most reviews and editorials in major magazines have focused upon the risk taking side of the book and how pressures of trading can change the biological composition of your body, impacting your appetite for risk (success builds a feeling of overconfidence and a greater appetite for risk) thus having the potential to cause booms and busts in stock markets and the broader economy. A substantial part (but not overwhelming) of the book is about finance and trading and author uses a trio of fictional fixed income (bond) traders during the 2008 crisis to illustrate his points, and this keeps the text from becoming too academic or dry.

But what also interested me was the more general topic on how humans are not disembodied brains who make rational decisions, but that our thinking is very much impacted by our body and our senses. There is a lot of analysis here on how the brain regions processing our reasoning skills are intricately tangled up with our motor circuits and are intimately linked to movement. There is also a whole level of activity where there is a feedback loop between our hormones and our thinking, and a lot of this is on a pre-conscious level. Reading the book helps explain gut instincts, and how during the most powerful moments of your life - satisfying moments of flow, of insight, of love and traumatic moments of fear anger and stress- you lose any feeling of the split between mind and body and the two merge as one.

From the perspective of someone who is interested in alternative health and martial arts, there is information here on how humans differ from other animals in that they can learn complex movements which are not instinctual, such as dance, music and martial arts and how these movements are stored in different parts of the brain as we train then to an instinctual level. On how the best traders, who have the quickest perceptions and best "gut feeling" usually are physically quite well developed as the two are intimately linked, with many ex-olympians and jocks on the trading floor. On how winning can influence our testosterone levels and higher testosterone levels prime our bodies to keep winning and this matters in sports (and by extension in one-on-one combat) as well as on the trading floor. On how we can train and improve our sensitivity to what is going on internally in our bodies, to better understand what is going in terms of our stress levels and how it affects our thinking. And also many health tips on managing stress (including the importance of cold water baths and showers), and how small amounts of stress and challenge are actually good for us and our health.

The title of the book comes from the following:

[The hour] between dog and wolf, that is, dusk, when the two cannot be distinguished from each other, suggests a lot of other things besides the time of day ... the hour in which ... every being becomes his own shadow, and thus something other than himself. The hour of metamorphoses, when the people half hope, half fear that a dog will become a wolf. The hour that comes to us from at least as far back as the Middle Ages, when country people believed that the transformation might happen at any moment.

- Jean Genet Prisoner of Love

In summary there is a lot in this book beyond the title and would recommend it to anyone with an interest in science, especially the functioning of the brain and the mind, as well as exercise and health.
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This book is basically about how emotional feedback loops trigger change in body chemistry and through that our behavior. The author argues that our brains and bodies are much more integrated than most people believe and that modern neuroscience proves it. You will find in this book a story told through the context of financial trading booms and busts how these feedback loops work. There is a lot of science in this book and it is well argued and convincingly presented.

The Hour Between Dog and Wolf is quite fascinating. We have this idea that our behavior is driven solely or mostly by our choices, choices that we consciously make. Research in the last few decades is making this harder and harder to accept. This book does an excellent job at showing how our behavior is much more complicated and that our body chemistry plays a big part in influencing our brain and our behavior.

I really liked this book and found it fascinating. Its ideas apply to much more than the trading context in which it is set. If you are interested in science, human behavior, or the brain I can easily recommend it.
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on June 24, 2012
As a trader of many years the book brought back lots of memories; - the good ones of being "at the still point of the turning world" calm, in a zone, while all around was a frenzy, and you could think at savant speed, effortlessly "seeing" answers in a way that had no conscious cognitive effort. The harder times when your body is in a knot and your mind won't work at all. This book captures both extremes and should be required reading for traders, managers and anyone interested in why markets behave as they do and how we might address the human failings that drive the behavior.
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on October 13, 2012
The Hour between the Dog and the Wolf is about risk taking, the nervous system and our biochemistry and how they all relate to each other in various feedback mechanisms. The book is both a combination of a scientific introduction to the way the nervous system and body work together and a fictional narrative of the trading floor in a bank. The narrative is used to describe the real time emotional changes felt by traders in response to their changing risk and profit environments. The book is informative and readable and I came out of it better understanding myself. The book is split into 4 distinct parts.

The first section is titled Mind and Body in the Financial Markets. The backdrop is the internet bubble and questions of exuberance in markets is pondered. The author introduces testosterone and cortisol as potential active molecules in impacting decision. Basic concepts of mind body separation are included. The author then goes on to describe the mind as facilitating the body. He discusses how if one view our purpose in life as to move, then the mind is just an elaborate mechanism to facilitate that movement more productively. This helps give the platform to understand us as being always being a vehicle for movement and that we should not deny the signals our body sends us.

The second section - Gut Thinking discusses the way our instincts can propogate through the nervous system. He discusses how our body's instincts operate on a much faster speed than our computational thought. This subject matter is similar to that of many behavioural scientists and is akin to Kahneman in fast and slow thinking. The value of relying on instincts is studied and our instincts are shown to be very good at pattern recognition which can fail when we are faced with randomness. The inclusion of our muscle responses to our nervous system and our internal feedbacks helps give an overall view of our various mind body relationships.

The 3rd section Seasons of the Market discusses various market regimes and how our body chemistry in each of those regimes is different. Searching for opportunity, riding waves of profit or enduring catastrophic losses are all discussed via narratives of characters the author uses. It helps make sense of real life situations and how we are all biased agents when it comes down to it. This section is where the author really weaves in the impact on financial decision making.

The author concludes with discussing the difference between various types of people and how environment and activity can affect our instincts and our feedback mechanisms. We all have some plasticity and though we inevitably are impacted by the stresses around us we can handle them differently and experience matters. The author then goes on to give partial solutions to dampening the positive and negative feedback loops our body creates in risk taking behaviour to improve our financial system.

All in all The Hour Between the Dog and the Wolf is a very informative account of the way we work in stressful environments and how those environments affect the way we think and act in an active fashion. I much preferred the scientific explanation instead of the specific impact on trading as the lessons are very broad and are relevant to much more than trading. One does not come out of reading the book having a clear path to more robust financial management as that is extremely challenging but one does come through it with more insight about how we work.
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on December 9, 2012
I read this book after completing my exposition of overcompensation, how a stressor or a random event causes an increase in strength, in excess of what is needed, like a redundancy. I was also looking for evidence of convex reaction to stressor, or the effect of a mathematical property called Jensen's inequality in domains and found it exposed here (in other words, why a combination low dose (most of the time) and high dose (rarely) beats medium dose all the time. The authors presents the evidence for the phenomenon in the following: 1) acute stressors cum recovery beat both absence of stressors and chronic ones (this includes thermal variations); 2) stressors make one stronger (post traumatic growth); 3) risk management is mediated by the deep structures in us, not rational decision-making; 4) winning causes an increase in strength (the latter are more complicated effects of convexity/Jensen's Inequality).
Great book. I ignored the connection to financial markets while reading it. But I learned that when under stress, one should seek the familiar.
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on July 30, 2012
This is a very good book which summarizes Coates' and many other researchers' work on neuroscience to show how the mind and body work together to help us manage success, failure, and stress. The book uses scenes from a trading floor to emphasize the interaction between mind and body, and the key takeaway point is that physiological changes can influence our decision making to a greater extent than previously understood. Although Coates does not spend a lot of time on the subject of economic theory, he does argue briefly that the influence of the body on the mind means that markets are not as rational as idealized in neoclassical economics, and therefore behavioral economics might be a better way of thinking about how markets actually work. I would have liked Coates to spend more time on this topic but the book moves briskly to present a great deal of information in 280 pages.

The book does not focus exclusively on trading, and many chapters feature general discussions of how the mind and body interact to produce expertise in a variety of contexts such as sports. I think the book could have been a bit better organized to help major points stand out from minor points, but overall this is a quality book that provides a good background into recent research in neuroscience.
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on June 11, 2015
After reading this book, I am convinced of the mind-body connection and the many ways we may "think with our bodies." Unlike what the title and cover suggests, the book is not totally about the "biology of the stock market", but uses the stock market as a central storytelling device (while giving a novelists' insider view of the trading floor), to advance the author's theories about how intertwined our various nonconscious organs are with our supposedly rational thoughts. It's quite an eye opener for those who like a bit more substance. Very much recommended.
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on December 26, 2012
Be aware that a big portion of the glowing five-star reviews are likely to be fake.

The biology of risk-taking is a fascinating new topic. I wish I could say the same about this book. Instead, the book is written for people who do not know anything about trading. Presumably to make it an "easier" read the author has included a fictitious narrative of various trading situations inside a bank. In every chapter we gets stuff like this: We meet (sic) Stefan (why not at least use Russian spelling?) who has a PhD in physics from Russia. Since he is an arbitrage trader he does not care about his clothing. More client-oriented traders wear Brooks Brothers, but not Prada. The book has page after page of this stuff; probably more than 50% of the book. Amateur anthropology. Interspersed with this narrative we are introduced (sic) to various chemicals that influence our brain. This could indeed be interesting, but I am continuously annoyed by the dumbed-down writing. I do not like reading a page on how Martin's body is showered (sic) with a chemical, first various parts of the brain is showered, then the heart is showered, etc. The sharp tongued Taleb has written the most backhanded complimentary review I have seen. Have a look yourself.

The signal-to-noise ratio in the book is very low. The author has published some work on neurology and trading. I thought this book would be a fairly intelligent summary of his own research plus a description of the whole research field. I also expected that the author's experience in trading would really make the book interesting. The author talks a lot about gut feel in trading. I expected some gut feel by a researcher-ex-trader of how biology influences trading and about research in the field. Furthermore, I expected an intelligent discussion about how it all influences aggregates, like market bubbles. The book contains nothing of the sort.

The author should bury his head in research for another ten years, then he should write a book targeted at thoughtful, intelligent readers. Sadly, the current book is a one star book.
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on September 21, 2012
Investors are well served by studying behaviorial and decision-making psychology broadly and then selectively transferring that knowledge to financial markets. Arguably, the most influential readings come from authors who are not directly involved in financial markets. For example, the Psychology of Intelligence Analysis by former CIA staffer Richard Heuer captures the pitfalls of making decisions when faced with incomplete information. Stepping back further, to readings about the emerging discipline of neuroeconomics, requires a basic understanding of brain science and physiology. There are some useful layman's guides to these subjects, such as Brain Rules by John Medina but what's been missing is a book that ties together a cohesive explanation of why your brain and physiology drive your behavior and how this collective impact can translate into a greater understanding of market behavior. The Hour Between Dog and Wolf succeeds in this objective. Using both plain language and vivid trading room stories, author John Coates has written an important book for finance industry professionals who want to expand their understanding of the biological underpinnings of behaviorial finance.

The book's fictitious examples of trading floor scenarios are particularly effective. Science always becomes more interesting when its explained with personalized situations. Coates has succeeded in connecting the neuroscience with the behaviorial / cognitive psychology that's most relevant to investors. Finally, the 'suggested reading' section is excellent, a primer for further study that's accessible to non-scientists.
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on August 18, 2014
One of the most important books I have read in many years is John Coates' The Hour Between Dog and Wolf: Risk Taking, Gut Feelings, and the Biology of Boom and Bust. My assessment is based on my experience in human psychophysiology (my doctoral degree was in this area), my 40 years of practice as a Jungian psychoanalyst, and my 27 years of experience in working with traders and the financial markets. While the book is focused on the biology of trading and traders, the principles and data elaborated in this work apply to most everyone exposed to the risks and stresses of modern life. For your own health and welfare read this book at your earliest opportunity.
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