Absolute Versus Relative Success: Why Overconfidence Creates an Inefficient Equilibrium.

Overconfidence is one of the most ubiquitous biases in the social sciences, but the evidence regarding its overall costs and benefits is mixed. To test the possibility that overconfidence might yield important relative benefits that offset its absolute costs, we conducted an experiment (N = 298 university students) in which pairs of participants bargained over the unequal allocation of a prize that was earned through a joint effort. We manipulated confidence using a binary noisy signal to investigate the causal effect of negotiators' beliefs about their relative contribution to the outcome of the negotiation. Our results provide evidence that high levels of confidence lead to relative benefits (how much one earns compared with one's partner) but absolute costs (how much money one receives overall). These results suggest that overconfidence creates an inefficient equilibrium whereby overconfident negotiators benefit over their partners even as they bring about joint losses.

Dynamics of actinotrichia regeneration in the adult zebrafish fin.

The skeleton of adult zebrafish fins comprises lepidotrichia, which are dermal bones of the rays, and actinotrichia, which are non-mineralized spicules at the distal margin of the appendage. Little is known about the regenerative dynamics of the actinotrichia-specific structural proteins called Actinodins. Here, we used immunofluorescence analysis to determine the contribution of two paralogous Actinodin proteins, And1/2, in regenerating fins. Both proteins were detected in the secretory organelles in the mesenchymal cells of the blastema, but only And1 was detected in the epithelial cells of the wound epithelium. The analysis of whole mount fins throughout the entire regenerative process and longitudinal sections revealed that And1-positive fibers are complementary to the lepidotrichia. The analysis of another longfin fish, a gain-of-function mutation in the potassium channel kcnk5b, revealed that the long-fin phenotype is associated with an extended size of actinotrichia during homeostasis and regeneration. Finally, we investigated the role of several signaling pathways in actinotrichia formation and maintenance. This revealed that the pulse-inhibition of either TGFß/Activin-ßA or FGF are sufficient to impair deposition of Actinodin during regeneration. Thus, the dynamic turnover of Actinodin during fin regeneration is regulated by multiple factors, including the osteoblasts, growth rate in a potassium channel mutant, and instructive signaling networks between the epithelium and the blastema of the regenerating fin.

Investigating Gender Differences under Time Pressure in Financial Risk Taking.

There is a significant gender imbalance on financial trading floors. This motivated us to investigate gender differences in financial risk taking under pressure. We used a well-established approach from behavior economics to analyze a series of risky monetary choices by male and female participants with and without time pressure. We also used second to fourth digit ratio (2D:4D) and face width-to-height ratio (fWHR) as correlates of pre-natal exposure to testosterone. We constructed a structural model and estimated the participants' risk attitudes and probability perceptions via maximum likelihood estimation under both expected utility (EU) and rank-dependent utility (RDU) models. In line with existing research, we found that male participants are less risk averse and that the gender gap in risk attitudes increases under moderate time pressure. We found that female participants with lower 2D:4D ratios and higher fWHR are less risk averse in RDU estimates. Males with lower 2D:4D ratios were less risk averse in EU estimations, but more risk averse using RDU estimates. We also observe that men whose ratios indicate a greater prenatal exposure to testosterone exhibit a greater optimism and overestimation of small probabilities of success.

Interoceptive Ability Predicts Survival on a London Trading Floor.

Interoception is the sensing of physiological signals originating inside the body, such as hunger, pain and heart rate. People with greater sensitivity to interoceptive signals, as measured by, for example, tests of heart beat detection, perform better in laboratory studies of risky decision-making. However, there has been little field work to determine if interoceptive sensitivity contributes to success in real-world, high-stakes risk taking. Here, we report on a study in which we quantified heartbeat detection skills in a group of financial traders working on a London trading floor. We found that traders are better able to perceive their own heartbeats than matched controls from the non-trading population. Moreover, the interoceptive ability of traders predicted their relative profitability, and strikingly, how long they survived in the financial markets. Our results suggest that signals from the body - the gut feelings of financial lore - contribute to success in the markets.

Detecting deceptive behaviour after the fact.

This study examined whether people can detect deception after the fact if they initially accept someone's behaviour at face value but then learn that they have been duped. Fifty-four groups composed of four to six mutual friends engaged in a group discussion with a financial incentive for arriving at a correct decision. One member of each group was secretly assigned to sabotage the decision. Although none of the participants noticed the deception when it was committed, they showed substantial accuracy in identifying the saboteur once they were told that a deception had occurred. Nevertheless, interrogation did not increase the accuracy of their detection of deception. Participants showed a significant positive relationship between confidence and accuracy. Finally, participants also showed better-than-chance accuracy in their judgments of who believed them during the interrogation and who did not. These results suggest that the detection of deception might often be accomplished using information gained after the fact to reinterpret behaviours that were not initially suspected.

Cortisol shifts financial risk preferences.

Risk taking is central to human activity. Consequently, it lies at the focal point of behavioral sciences such as neuroscience, economics, and finance. Many influential models from these sciences assume that financial risk preferences form a stable trait. Is this assumption justified and, if not, what causes the appetite for risk to fluctuate? We have previously found that traders experience a sustained increase in the stress hormone cortisol when the amount of uncertainty, in the form of market volatility, increases. Here we ask whether these elevated cortisol levels shift risk preferences. Using a double-blind, placebo-controlled, cross-over protocol we raised cortisol levels in volunteers over 8 d to the same extent previously observed in traders. We then tested for the utility and probability weighting functions underlying their risk taking and found that participants became more risk-averse. We also observed that the weighting of probabilities became more distorted among men relative to women. These results suggest that risk preferences are highly dynamic. Specifically, the stress response calibrates risk taking to our circumstances, reducing it in times of prolonged uncertainty, such as a financial crisis. Physiology-induced shifts in risk preferences may thus be an underappreciated cause of market instability.

Bigh3 is upregulated in regenerating zebrafish fin.

Zebrafish is a good model for studying regeneration because of the rapidity with which it occurs. Better understanding of this process may lead in the future to improvement of the regenerating capacity of humans. Signaling factors are the second largest category of genes, regulated during regeneration after the regulators of wound healing. Major developmental signaling pathways play a role in this multistep process, such as Bmp, Fgf, Notch, retinoic acid, Shh, and Wnt. In the present study, we focus on TGF-ß-induced genes, bigh3 and bambia. Bigh3 encodes keratoepithelin, a protein first identified as an extracellular matrix protein reported to play a role in cell adhesion, as well as in cornea formation and osteogenesis. The expression of bigh3 in zebrafish fins has previously been reported. Here we demonstrate that tgf-b1 and tgf-b3 mRNA reacted with delay, first showing no regulation at 3 dpa, followed by upregulation at 4 and 5 dpa. Tgf-b1, tgf-2, and tgf-brII mRNA were back to normal levels at 10 dpa. Only tgf-b3 mRNA was still upregulated at that time. Bigh3 mRNA followed the upregulation of tgf-b1, while bambia mRNA behaved similarly to tgf-b2 mRNA. We show that upregulation of bigh3 and bambia mRNA correlated with the process of fin regeneration and regulation of TGF-b signaling, suggesting a new role for these proteins.

A note on trader Sharpe Ratios.

Traders in the financial world are assessed by the amount of money they make and, increasingly, by the amount of money they make per unit of risk taken, a measure known as the Sharpe Ratio. Little is known about the average Sharpe Ratio among traders, but the Efficient Market Hypothesis suggests that traders, like asset managers, should not outperform the broad market. Here we report the findings of a study conducted in the City of London which shows that a population of experienced traders attain Sharpe Ratios significantly higher than the broad market. To explain this anomaly we examine a surrogate marker of prenatal androgen exposure, the second-to-fourth finger length ratio (2D:4D), which has previously been identified as predicting a trader's long term profitability. We find that it predicts the amount of risk taken by traders but not their Sharpe Ratios. We do, however, find that the traders' Sharpe Ratios increase markedly with the number of years they have traded, a result suggesting that learning plays a role in increasing the returns of traders. Our findings present anomalous data for the Efficient Markets Hypothesis.

The second leg home advantage: evidence from European football cup competitions.

The home advantage is a widely acknowledged sporting phenomenon, especially in association football. Here, we examine the second leg home advantage, an effect that is discussed in the public domain but which has received very little scientific attention. The second leg home advantage effect occurs when on average teams are more likely to win a two-stage knock-out competition when they play at home in the second leg. That is, both teams have a home advantage but this advantage is significantly greater for the team that plays at home second. Examining data from three different European Cup football competitions spanning 51 years, we show that the second leg home advantage is a real phenomenon. The second leg home team has more than a 50% probability to qualify for the next round in the competition even after controlling for extra time and team ability as possible alternative explanations. The second leg home advantage appears, however, to have decreased significantly over the past decade. Possible reasons for its existence and subsequent decline are presented.