Studies show that high testosterone levels induce riskier decisions that can destabilize financial markets.
Did testosterone play a role in the stock market crashes, massive speculative bubbles and other events that have punctuated the history of finance since the creation of the first “stock market” in Amsterdam in the 17th century? The environment, dominated by men, attracts the attention of scientists. A team from the University of Oxford (United Kingdom) set out to investigate the impact of male hormones on decision-making and the level of risk incurred in trading rooms.
Their work, published in the journal Management Science, show that high testosterone levels are closely linked to decisions that drive prices up and destabilize markets.
Misperception
To arrive at this observation, the authors brought together 140 traders men and simulated trading room conditions. Some of the participants received a pill to increase testosterone levels and the other a placebo. The traders completed 17 sessions allowing them to buy, sell, auction and other financial transactions. Each time, they were competing against each other, with the goal of making as much money as possible.
However, the results show a direct causal link between the level of testosterone and the fair appreciation of financial assets. The hormone led participants to engage in decisions that ultimately amplified the size and persistence of stock market bubbles. These participants tended to increase bids, sale prices and volumes, and to have a misperception of the true value of the shares – although this was displayed throughout the exercise.
Decision-making is linked to our hormones; these can exacerbate certain risks, insist the authors who believe that this biological parameter should be taken into account more in professions based on risk taking. “Companies could benefit from better understanding when and how hormones exert their influence,” they suggest.
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