Could the reason for the world's economic woes all come down to finger length? Although certainly an oversimplification of our current troubles, scientists have shown that financial traders who lose the biggest bucks are more likely to have shorter ring fingers than index fingers.
Previous research indicates that index-to-ring-finger (2D:4D) ratios are a good proxy for how much testosterone we were exposed to in the womb. High levels of the hormone tend to lead to growth of the ring finger and thus a low 2D:4D ratio. With increased early testosterone exposure comes increased sensitivity to the hormone in adult life--and studies have linked this heightened sensitivity to quick reactions and a willingness to take risks.
Because both are desirable characteristics for financial traders, who make minute-to-minute investment decisions, former Wall Street trader and cognitive scientist John Coates of the University of Cambridge in the U.K. wondered whether finger ratio correlated with trader success. Last year, Coates and colleagues reported that traders who experienced heightened testosterone levels in the morning made more money than traders who did not (ScienceNOW , 14 April, 2008). At the time, Coates had read that men with low index-to-ring-finger ratios had a better aptitude for sport than men with high ratios. So "for a lark," Coates says, he decided to take handprints of 44 of the young male traders he studied, all of whom worked on a fast-paced London trading floor.
Coates's hunch paid off. In the new study, reported online today in the Proceedings of the National Academy of Sciences, his team found that traders with the lowest index-to-ring-finger ratios (i.e., those exposed to more testosterone before birth) made the most money over a 20-month period, even when the researchers controlled for years of experience. They averaged the equivalent of $1,232,590, nearly six times more than that of men with high ratios. "I almost fell off my chair," says Coates. "I could not believe what I was seeing."
Tim Harford, a columnist for the Financial Times and author of The Logic of Life: The Rational Economics of an Irrational World, calls the study "fascinating." He says he's glad to see that economists have started looking at financial markets in terms of natural selection instead of looking at them in terms of rational people making rational decisions.
Coates, however, says it is important to note that this study focuses on only one type of trading, and increased confidence and quick reactions may in fact be a hindrance to those trading over long periods of time, like investors at hedge funds and investment banks. "Each style of trading may require a different set of traits," he says.