The trader was in deep trouble.  A millennial who had only recently been allowed to set foot on a Wall Street floor, he made bad bets, and in a panic to recoup his losses, he’d blown through risk limits, losing $4.9 million in a single afternoon.

It wasn’t a career-ending day. The trader was taking part in a simulation run by Andrew Lo, an MIT finance professor.  Lo had rigged a conference room with monitors to create a lab where 57 stock and bond traders lent their bodies to science. The goal: find out if top performers can be identified based on how they respond to market volatility.

Companies including JPMorgan Chase and Bank of America have had discussions with tech companies about systems that monitor worker emotions to boost performance and compliance, according to executives at the banks who didn’t want to be identified speaking about the matter.

As machines encroach on humans’ role in the markets, technology offers a way to even the fight.  The devices Lo used - wristwatch sensors that measure pulse and perspiration - could warn traders to step away from their desks when their emotions run wild. They could also be used to screen hires to find those whose physiology is best suited to risk-taking - what interested the bank that allowed the MIT study.  The most promising application, and the one with the most profound privacy issues, would be for keeping tabs on employees, Lo says. Risk managers could use it to spot problems brewing on a specific desk, such as unauthorized trading, before too much damage is done.

“Imagine if all your traders were required to wear wristwatches that monitor their physiology, and you had a dashboard that tells you in real time who is freaking out,” Lo says. “The technology exists, as does the motivation - one bad trade can cost $100 million - but you’re talking about a significant privacy intrusion.”

Emotional surveillance has an undeniably dystopian vibe, like a finance version of George Orwell’s 1984, but it’s not science fiction. Banks are already signing up for services that incorporate it into their analysis of behavior. A startup founded by MIT graduates called Humanyze has created a sensor-laden badge that transmits data on speech, activity, and stress patterns.