How testosterone leads to overpricing on Wall Street. (2016)

“…the rush of winning triggers physiological changes that undermine rational thinking and decision-making..

Ideas for Leaders #608
Ideasforleaders.com
Based on work by Asst Prof Amos Nadler, Ivey Business School

“New research shows that testosterone increases the over-confident and over-optimistic impulses of male traders, resulting in higher prices and more frequent bubbles. It also reveals, in general, that we are not always as rational as we believe.

The research studied the impact of increased testosterone levels on the buy-and-sell decisions of 140 traders  in 17 experimental trading sessions. It found that “….the rush of winning triggers physiological changes that undermine rational thinking and decision-making.”

In the research, testosterone led to:

• Overpricing
• Larger volume
• More aggressive behaviour before and after price peaks
• …and encouraged ‘momentum’ trading.

“While the research reveals how testosterone changes behaviours and decisions related to trading, the question remains: why. The researchers offer several possible answers including overconfidence, unwarranted optimism and the effect of testosterone on cognitive skills.”

Access the full article here: How testosterone leads to overpricing on Wall Street

Article based on ‘The bull of Wall Street: Experimental analysis of testosterone and asset trading’, a discussion paper published in 2016, written by Asst Prof Amos Nadler of Ivey Business School. It’s avaialble here: The bull of Wall Street