Market Hormones
Friday, September 19th, 2008John Coates & Joe Herbert (”Endogenous steroids and financial risk taking on a London trading floor“) took saliva swabs from 17 male traders at a London stock-dealing firm twice a day and measured the samples for testosterone (which is associated with male aggressiveness and sexual behaviour) and cortisol (which is summoned by the body to deal with “fight or flight” emergencies).
When the traders were in profit, their testosterone levels surged. But when they were in loss, or in fluctuation, their cortisol rose sharply.
Testosterone encourages confidence and risk-taking, and has an accumulative effect. Research in animals suggests that, over the long term, high doses of the hormone impair judgement and encourage excessive risks.
Cortisol has a beneficial, euphoric effect in the short term, but after two weeks of exposure to it at high levels, the hormone can erode confidence and magnify fear of risk.
Coates: “If you were to take an identical set of facts and present them to someone high on testosterone and someone who’s got chronic cortisol, the first one would see opportunities everywhere and the second would see nothing but risks.”
“Science unveils hidden drivers of stock bubbles and crashes,” PhysOrg


