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Financial markets may be destabilized by traders’ hormone levels
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Testosterone and cortisol levels may cause adults on the trading room floor to take more risks that may cause destabilization in financial markets, according to research published in Scientific Reports.
“Our view is that hormonal changes can help us understand traders’ behavior, particularly during periods of financial instability,” Carlos Cueva, PhD, from the department of economics at the University of Alicante, Spain, said in a press release.
In a simulated trading floor in the lab, researchers had participants buy and sell assets among themselves to determine hormone responses. Natural hormone levels were measured during one experiment and artificially raised in another.
“Our aim is to understand more about what these hormones do,” Ed Roberts, PhD, from the department of medicine at Imperial College London, said in the release. “Then we can look at the environment in which traders work, and think about whether it’s too stressful or too competitive. These factors could be affecting traders’ hormones and having an impact on their decision making.”
Researchers found that participants with higher levels of cortisol were more likely to take risks, and these levels were linked to instability in prices.
During a follow-up, researchers evaluated 75 young men who were assigned cortisol or testosterone and then placebo. Researchers found that hormones shifted investments toward riskier assets. Testosterone was linked to optimism on how prices would change, whereas cortisol was linked to a preference for riskier investments.
“The results suggest that cortisol and testosterone promote risky investment behavior in the short run,” Roberts said. “We only looked at the acute effects of the hormones 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.”
Disclosure: The researchers report no relevant financial disclosures.
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