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decisions
Hormonal traders make risky decisions
It’s no secret that stockbrokers operate in stressful environments, so what happens when these environments affect their hormone levels? A new study has found that the state of a trader’s body chemistry can impact the stock market just as much as the state of the economy.
T
he study, led by researchers from
assets,” the study authors revealed in the journal
the University of Alicante, Imperial College
Scientific Reports. “Cortisol appears to affect
of London and the University of Cambridge,
risk preferences directly, whereas testosterone
responded to research suggesting the endogenous
operates by inducing increased optimism about
hormones cortisol and testosterone may critically
future price changes.”
influence a trader’s financial decision-making.
The researchers believe the stressful
Cortisol is elevated in response to physical or
environment of financial markets may promote
psychological stress, preparing the body for a
high levels of cortisol and testosterone in traders.
fight-or-flight response, while testosterone rises
Co-author Dr Ed Roberts, from Imperial College
before competitive situations.
London, said, “It would be interesting to measure
The scientists simulated the trading floor by
traders’ hormone levels in the real world, and
having 142 volunteers, male and female, play an
also to see what the longer term effects might be.”
asset-trading game in groups of around 10. Those
Co-author Dr Carlos Cueva, from the
who had naturally higher levels of cortisol were
University of Alicante, said that “hormonal
more likely to take risks, and high levels in the
changes can help us understand traders’
group were associated with instability in prices. In
behaviour, particularly during periods of
a follow-up experiment, 75 young men were given
financial instability”. Dr Roberts added that
either cortisol, testosterone or a placebo before
by understanding what these hormones do,
playing the game.
researchers can “look at the environment in
“We found that both cortisol and testosterone shifted investment towards riskier
4 | LAB+LIFE SCIENTIST - September 2015
which traders work and think about whether it’s too stressful or too competitive”.
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