July 2, 2015

expert reaction to study on hormone levels and financial risk taking in men

Hormones have been shown to control behavioural and structural changes in the body, and researchers publishing in the journal Scientific Reports have examined a possible association between levels of testosterone or cortisol, and risk taking in financial situations.

Dr Richard Quinton, Consultant & Senior Lecturer in Endocrinology, Newcastle-upon-Tyne Hospitals & University, said:

“I am not an expert in game theory, individual and group psychology, or models of financial trading, so cannot comment on these aspects of the studies, but from an endocrinologist’s perspective, these look to be powerful and robust study. The endocrine aspects of the study protocol have clearly been carefully and logically designed, apart from the minor finding that the washout period for testosterone might not have been quite long-enough in one study module (i.e. there might still have been some residual testosterone of exogenous origin in the participants’ systems).

“These findings seem to be in line with previous research in this area, but are significantly more refined than some studies. Blood levels of cortisol, a marker of the overall degree of stress experienced by an individual, are positively-associated with trading decisions acting to increase market volatility, particularly in males, both in respect of the baseline level and the observed increment during experimental trading conditions. The results of this experiment were completely intuitive, as one would expect individuals who are less prone to becoming stressed (both anticipatory and “in flight”) to make better quality decisions in any given situation.

“However, the second part of this study shows is that this isn’t just an association-effect (ie. People who get overly-stressed make poor decisions and that stress also raises their cortisol levels that much more). Administration of exogenous cortisol exacerbated trading behaviour predisposing to market volatility. So what might be the behavioural effect of administering (at low-dose) antagonists (inhibitors) of Cortisol synthesis, such as metyropone or ketoconazole? That would be an obvious area for future research.

“The testosterone data are also more nuanced than those from previous studies. These results didn’t indicate a simplistic “over-aggression” effect of traders “playing chicken” with each other, but rather a testosterone-induced predisposition to trading behaviours based upon over-optimistic predictions – which is potentially much more interesting.”

Prof. Ashley Grossman, Professor of Endocrinology, University of Oxford, said:

“These scientists have noted previously that instability of the stock markets may be associated with hormone levels in the traders, but it has been unclear as to whether these were causes or consequences. The answer now seems to be both. They have shown that cortisol and testosterone levels in men are associated with highly unstable trading, and what is really fascinating is administering cortisol to men increases their tendency to indulge in a risky bet. Cortisol is a stress hormone which increases in situations where there is no obvious coping strategy. So, in a fluid and volatile trading situation, a rise in blood cortisol can in turn increase trading in volatile stocks, so accelerating and enhancing the volatility; a bubble feeds on itself to burst.

“And what of testosterone? Blood levels in traders are also enhanced in conditions of market volatility, but this case testosterone administration leads to exuberant optimism and this more risky trading.

“So, traders beware, your hormones can determine your risk taking and exaggerate market fluctuations. With massive market volatility forecast over Greece and its debt repayments, or their lack, it’s important to know just how much impact hormones have on traders’ decisions. Perhaps the answer is more female traders, as none of these studies seem to apply to women.”

‘Cortisol and testosterone increase financial risk taking and may destabilize markets’ by Cueva et al. will be published in Scientific Reports at 14:00 UK time on Thursday 2^nd July, which is also when the embargo will lift. 

Declared interests

Dr Richard Quinton: I have no conflicts of interest.

Prof. Ashley Grossman: In the Acknowledgements section of the paper, you will see my name as I helped supply the testosterone and placebos for the interventions study. However, I have no commercial or other interests.