Traders may take more risks under the influence of the hormones testosterone and cortisol, potentially destabilising financial markets, a new study from the Imperial College London reports.

Volunteers took part in a simulated the trading floor experiment, buying and selling make-believe assets among themselves. Researchers measured the particpants’ natural hormone levels in one experiment and artificially raised them in another.

The volunteers invested more in risky assets when given doses of either testosterone or cortisol. The study’s authors suggest the findings be considered by policymakers developing more stable financial institutions.

Co-lead author Dr Ed Roberts, from the Department of Medicine at Imperial College London, said:

“Our aim is to understand more about what these hormones do. Then we can look at the environment in which traders work, and think about whether it’s too stressful or too competitive. These factors could be affecting traders’ hormones and having an impact on their decision-making.”

That the unpredictability of human behaviour can make financial markets unstable has long been recognised by economists.

For example, John Maynard Keynes wrote of “animal spirits” and Alan Greenspan and Robert Shiller alluded to “irrational exuberance” as a possible cause of overvaluations in asset markets. Scientists, however, have only recently begun to explore the physiological basis for this phenomenon.

C. Cueva et al. Cortisol and testosterone increase financial risk taking and may destabilize markets. Scientific Reports, 2 July 2015. DOI: 10.1038/10.1038/srep11206

Photo: Tripp/flickr

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