Cortisol and testosterone increase financial risk taking and may destabilize markets. (2015)

“Stressful and competitive working environments could be increasing hormone levels and having an impact on decision-making.”

Carlos Cueva, Departamento de Fundamentos del Análisis Económico, Universidad de Alicante and R. Edward Roberts, Department of Medicine, Imperial College London

also Tom Spencer, Department of Psychiatry, University of Cambridge; Nisha Rani, Cambridgeshire & Peterborough NHS Foundation Trust; Michelle Tempest, Royal College of Psychiatrists, UK; Philippe N. Tobler, Laboratory for Social & Neural Systems Research, University of Zurich; Joe Herbert, John van Geest Centre for Brain Repair, University of Cambridge; Aldo Rustichini, Department of Economics, University of Minnesota also Department of Physiology, Development & Neuroscience, University of Cambridge.

Scientific Reports 5, Article number: 11206

“Trading floors are highly stressful and competitive environments. … such conditions are known to be associated with fluctuations … in two endogenous steroid hormones: cortisol and testosterone.

“Cortisol is elevated in response to physical or psychological stress, and is particularly sensitive to situations of novelty, uncertainty or threat.

“Testosterone has been found to both predict success rates and confidence in competitive encounters with levels increasing in response to victories or challenging situations, thought to be part of a positive feedback loop termed the ‘winner effect’.

“…we recorded salivary levels of cortisol and testosterone in people participating in an experimental asset trading game… We found that individual and aggregate levels of endogenous cortisol predict subsequent risk-taking and price instability.

“We then administered either cortisol or testosterone… to young males before they played an asset trading game. … both cortisol and testosterone shifted investment towards riskier assets. Cortisol appears to affect risk preferences directly, whereas testosterone operates by inducing increased optimism about future price changes.”

Interviewed for the BBC, the researchers said that “stressful and competitive working environments could be increasing hormone levels and having an impact on decision-making.”

Read the full academic article here: Cortisol and testosterone increase financial risk taking

Read the BBC report here: Traders’ hormones ‘increase risky behaviour’

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