Chuck Bednar for redOrbit.com – @BednarChuck
Increased levels of the hormones testosterone and cortisol could cause financial traders to take more risks, potentially resulting in market instabilities, according to new research published in a recent edition of Scientific Reports.
In the study, a team of international researchers explained that while it’s “widely known” that financial markets can experience dangerous levels of instability, it’s uncertain why this happens. Recent research had suggested that testosterone and cortisol could “critically influence traders’ financial decision making,” so the authors set to further investigate this potential link.
According to BBC News, the researchers recruited 142 male and female volunteers and had each of them take part in a stock market game while monitoring their hormones levels in two different experiments. In the first experiment, men with higher cortisol levels were found to be more likely to take risks, leading to instability in prices, but no such link was found in the women.
In the second experiment, 75 young men were given one of the two hormones before playing the game, and then given a placebo. The experiment showed that cortisol appeared to encourage the men to make higher-risk investments, while testosterone increased the feeling that they were in the midst of a winning streak.
Hormones of financial traders are “like elite athletes”
“We found that both cortisol and testosterone shifted investment towards riskier assets,” the authors explained in their study. “Cortisol appears to affect risk preferences directly, whereas testosterone operates by inducing increased optimism about future price changes.”
“Our results suggest that changes in both cortisol and testosterone could play a destabilizing role in financial markets through increased risk taking behavior, acting via different behavioral,” they added. Dr. Edward Roberts of Imperial College London, one of the study authors, told the BBC that the study demonstrates that financial traders are “like elite athletes” in this regard.
The experiments were conducted in a laboratory, and the researchers recorded testosterone and cortisol levels in the subjects through their saliva. Prior to playing the trading game, participants were given either a single oral dose of 100 mg hydrocortisone or three doses of 10 g transdermal 1 percent testosterone gel over a period of 48 hours.
The controlled condition of the study are one of its shortcomings, Dr. Roberts said, and reveal why addition research is needed. “We only looked at the acute effects of the hormones in the lab,” he told BBC News. “It would be interesting to measure traders’ hormone levels in the real world, and also to see what the longer term effects might be.”
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