Play, hormone... but not on the stock exchange
Testosterone forced traders to risk money
Elizaveta Ivtushok, N+1
The male sex hormone testosterone is able to influence traders' bets on financial markets, forcing them to make risky decisions: to put a high price on both buying and selling. This was found out by an international group of scientists who increased the testosterone levels of young traders and then followed their behavior during trading on the securities market. Article Nadler et al. The Bull of Wall Street: Experimental Analysis of Testosterone and Asset Trading is published in the journal Management Science.
When trading on the securities market, it is necessary to take into account many different factors that can affect the behavior of traders, which can subsequently lead to risky bets. For example, female traders are much less likely to engage in risky operations in the process of securities trading. Scientists suggest that the reason for this is the excessive production of the male sex hormone testosterone. Until now, however, it has not been systematically shown exactly how this hormone affects the financial behavior of traders. The authors of the new work presented the results of the first experimental evidence of the effect of testosterone levels on the process of securities trading.
140 young people (average age 23) took part in the experiment. The participants were divided into two groups: one group received a dose of testosterone (by applying ointment to the skin of the body), and the second received a placebo. After that, they were asked to participate in the process of buying and selling securities under experimental conditions: volunteers could both bid and ask for a price, receiving, as a result, a small monetary reward. Scientists have suggested that participants from the active group (who received testosterone) will make higher bets, and this will lead to frequent economic bubble — a risky situation in which securities are traded at a price very different from the fair (average market).
The researchers measured the level of testosterone and its biologically active form, dihydrotestosterone, before and after applying the ointment (both "active" and placebo). In the blood of participants from the active group, the testosterone level was 300 nanograms per deciliter higher than in the control group (and in the active group before applying the ointment). The level of dihydrotestosterone increased by 80 nanograms per deciliter.
Then the scientists analyzed the behavior of the participants in the experiment during the trading process. They found out that the group of participants who received testosterone adhered to the "buy higher to sell even higher" strategy: this increased the level of economic bubbles in the trading process by about 20 percent compared to the control group. As for the control group, its participants traded on the least risky principle of "buy lower, sell higher".
The authors point out the need to take into account the influence of hormones on the financial decision-making process, since biological factors, in their opinion, can lead traders to risky decisions and, accordingly, financial losses. Financial corporations, in their opinion, can learn a lot from studying the influence of such factors on people's behavior.
The situation in the financial market can be caused by a variety of factors: from the mood of traders to the weather and the political situation in the country.
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