Men’s Hormone Levels Might Affect Financial Markets”

Hormones can affect the body and mind in a number of ways, and now it turns out that they may even have an impact on men’s financial risk taking.

A new study published today in Scientific Reports suggests that alterations in the levels of cortisol and testosterone in male market traders may predict risk taking and price instability, at least in lab experiments designed to resemble real-world financial markets.

The researchers conducted two experiments. First, 142 men and women played an asset-trading game in groups of about 10 people each. The game mimicked some of the characteristics of real-world financial markets, in which multiple participants trade stocks as buyers and sellers, and the behavior of each trader is affected by the behavior of other traders. The researchers measured naturally-occurring levels of cortisol and testosterone in saliva samples taken from the people in the study. They found that, in men, high levels of cortisol were linked to increased trading activity as well as the likelihood of mispricing and overall price instability.

In the second experiment, the researchers administered cortisol to 34 men ages 18 to 30, and testosterone to 41 men in the same age group before the men played the asset-trading game. The participants in both groups were also given placebo in a different stage of the experiment so that the researchers could compare hypothetical effects of both hormones on risk-taking behavior with placebo. The investigators found that the men in the study were more likely to invest in riskier assets after receiving either of the two hormones than they were after receiving placebo.

The researchers were surprised to see the extent to which the two hormones appeared to affect the participants’ behavior. “We were not sure that anything would happen, and it does happen, in a big way,” said study co-author Aldo Rustichini of the University of Minnesota.

“Both cortisol and testosterone affect investment in financial markets, and they affect it in a similar way because they make traders more willing to take risks,” Rustichini said. “So if you are looking for an explanation of why we have booms and busts in financial markets, the idea that hormones may have a lot to do with it now is much more credible.”

Previously the researchers had indirect evidence that hormones could affect traders’ decision-making, but now they have direct evidence that supports this idea, Rustichini said. “And by direct evidence I mean that, if I take a subject and I shoot him with testosterone, I know that his investment is going to be more risky,” he said.

The new results do suggest that the two hormones promote risky investment behavior in the short run, said study co-author Ed Roberts, of Imperial College London, but he stressed that the researchers only looked at their acute effects in the lab. “It would be interesting to measure traders’ hormone levels in the real world, and also to see what the longer term effects might be,” he said.