Think Your Stockbroker is Psycho? Study Says...
Ever wonder how your stockbroker can casually shrug his shoulders when you're losing your shirt, and then turn around and recommend another high-risk trade? It might be a psychological predisposition, according to a recent study.
A German news site called Spiegel got a hold of a small behavioral study that attempted to compare egotism and the propensity to cooperate among a group of brokers and a group of imprisoned psychopaths. The findings: The brokers were more reckless and manipulative than the psychopaths.
In fact, researchers at the University of St. Gallen and the Poschwies prison near Zurich, said they were astounded at the level to which the brokers exceeded their expectations for bad behavior.
Indeed, one of the study's co-authors -- Thomas Noll, a lead administrator at the Poschwies prison -- told Spiegel staffers that instead of making sober, business-like decisions the stockbrokers would go to great lengths to create win-lose situations. "It was most important to the traders to get more than their opponents," Noll said in the Spiegel interview. "They spent a lot of energy trying to damage" the competition.
In a simple-to-understand analogy, the researchers said that if a stockbroker and a psychopath happened to live next door to one another and happened to buy the same car, the stockbroker would go after the psychopath's wheels "with a baseball bat" to make the broker's car look comparatively better.
Of course the study was small -- only 28 brokers agreed to take the tests -- so it may not hold up with a bigger sample. But some securities experts thought the results were consistent with what they'd seen, at least among a subset of brokers: "The line between a criminal and a dishonest broker isn't that great -- and there are a lot of brokers who walk awfully close to the line," says Andrew Stoltmann, a Chicago-based securities lawyer.
Does he think the study will encourage brokers to plead insanity when charged with wrongdoing? They already are, says Stoltmann. "Allen Stanford is trying to do that now," he said.
Stanford, a Texas financier who is accused or orchestrating a multi-billion dollar Ponzi scheme, had his trial delayed earlier this month, when he claimed he was suffering from amnesia. Last year, Stanford's attorneys said that he wasn't fit to be tried because prison had turned him into "a wreck of a man" -- depressed, half blind and nearing insanity.
Conrad de Aenlle, a MoneyWatch markets blogger, has another explanation for why brokers might be so willing to take risks: "There is something about the way traders are compensated that makes extreme risk-taking quite sensible," he says. "If you make a gazillion, you get a huge bonus. If you lose a gazillion, you get fired and start the following Monday doing the same thing for a different bank. The risks are nothing like the rewards."
More on MoneyWatch
5 Weird Ways to Save Your Retirement
7 Survival Tips for a Manic Market
Best Investments for a Recession
9 Money Rules You Ought to Ignore
America's Longest -- and Most Costly -- Commutes
