Scientists found that a couple of hormones called testosterone and cortisol drive professional traders into making hectic decisions. A recently published study reveals that the influence of the two is so major that can lead to a market collapse.
The study was published late last week in the journal Scientific Reports.
During their research, scientists were able to simulate the stressful conditions of a stock market trading floor and measure the changes in the participant’s hormone levels. Surprisingly, when given cortisol and testosterone supplements the “traders” started to take more risks and invest in high-risk assets.
But the taste for risk was fueled by cortisol. Testosterone only helped participants to feel more optimistic about their financial decisions and price increases.
Yet a 2011 study showed that testosterone as well influences the appetite for risk in traders. But unlike cortisol the results are not that obvious and have a U-shaped evolution. This means that risk increases whenever testosterone levels become too high or too low.
The 2011 research was performed on both sexes and found that the only risk and instability averse people were those with intermediate testosterone levels.
Another study confirmed that there is a link between cortisol levels and risky behavior. This study used a trading game, while participants were given cortisol. At both team and individual levels, participants engaged in more erratic behavior when their cortisol levels jumped.
Cortisol is a hormone that is produced by the human body whenever it is under a lot o pressure or the blood sugar goes down.
Past studies had shown that males with a lot of testosterone are highly competitive and cope well in stressful situations. Researchers explained that the trading floor is both competitive and stressful. In fact it may be nominated as the most stressful workplace on Earth.
“These factors could be affecting traders’ hormones and having an impact on their decision-making,”
said co-autor of the study Dr Ed Roberts of the Imperial College London. in U.K.
Dr Carlos Cueva, another co-author of the study, said that the changes observed in hormone levels can help scientists better understand brokers’ risky behavior particularly when financial instability kicks in.
The findings may come in handy especially these days after the Greek voted ‘no’ to the austerity measures imposed by their international creditors. Financial markets are expected to become really nervous and so is the trading floor.
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