Financial markets face another risk: the hormones of traders

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According to recent research, testosterone and cortisol have the potential to destabilize the global financial markets by making traders take more risks.

The hormones testosterone and cortisol may destabilise financial markets by making traders take more risks, according to a study.

Researchers simulated the trading floor in the lab by having volunteers buy and sell assets among themselves. They measured the volunteers’ natural hormone levels in one experiment and artificially raised them in another.

When given doses of either hormone, the volunteers invested more in risky assets.

The researchers think the stressful and competitive environment of financial markets may promote high levels of cortisol and testosterone in traders. Cortisol is elevated in response to physical or psychological stress, increasing blood sugar and preparing the body for a fight-or-flight response. Previous studies have shown that men with higher testosterone levels are more likely to be confident and successful in competitive situations.

The authors of the new study, published in Scientific Reports, suggest the findings should be considered by policymakers looking to develop more stable financial institutions.

“Our view is that hormonal changes can help us understand traders’ behaviour, particularly during periods of financial instability,” said Dr Carlos Cueva, one of the lead authors of the study, from the Department of Economics at the University of Alicante.

Source: https://www.sciencedaily.com/releases/2015/07/150702094903.htm

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