"Why Success Breeds Success: The Science of “The Winner Effect"'

From Brain Pickings:

Biochemistry and the self-reinforcing upward spiral of winning.

 The past century of science has demonstrated the pivotal role of biochemistry in such human phenomena as love, attraction, and lust. But to consider that individual neurobiology might impact things as rational and complex as, say, stock markets seems rather radical. Yet that’s precisely what trader-turned-neuroscientist John Coates explores in The Hour Between Dog and Wolf: Risk Taking, Gut Feelings and the Biology of Boom and Bust (public library) — an ambitious look at how body chemistry affects high-stakes financial trading, in which Coates sets out to construct — and deconstruct — a “universal biology of risk-taking.”

One particularly fascinating aspect of risk-taking has to do with what is known as “the winner effect,” a self-reinforcing osmosis of the two key hormones driving the biochemistry of success and failure — testosterone, which Coates calls “the hormone of economic bubbles,” and cortisol, “the hormone of economic busts.” In traders — as in athletes, and in the rest of us mere mortals when faced with analogous circumstances — testosterone rises sharply and durably during financial booms, inducing a state of risk-seeking euphoria and providing a positive feedback loop in which success itself provides a competitive advantage. By contrast, the stress hormone cortisol spikes during financial downturns; traders with sustained high levels of cortisol become more risk-averse and timid, ultimately being less competitive.
Coates explains:

The euphoria, overconfidence and heightened appetite for risk that grip traders during a bull market may result from a phenomenon known in biology as the ‘winner effect.’
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