14 DAY TRIAL // For you, testosterone may be a notion connected to high sex drive and muscles. But the male sex hormone influences male's behavior beyond physics and sex life. Including the economic behavior. A high testosterone blood level may translate into above-average profits for that day, as found by a new research published in the journal Proceedings of the National Academy of Sciences. The investigation was made on 17 male London financial stock traders for a period of 8 days.
The blood testosterone levels vary naturally with age (after a boom during puberty, there is a gradual decline with the age) and on a daily basis, due to various factors. All these fluctuations reflect in the competitiveness and sexual behavior. It appeared that each trader's testosterone blood amounts were over the average on days when profits overcame the daily average.
High testosterone levels translated into increased confidence and risk-taking appetite (testosterone boosts aggressiveness and dominant behavior), improving trading performance. But the team also found the negative side: too much testosterone or prolonged high levels translated into impulsive decisions and extreme risk-taking, accompanied by losses.
But testosterone was found to work in tandem with cortisol ("the stress hormone"). High cortisol levels were connected to a decreased risk behavior, even when testosterone was high. This effect appeared to turn long lasting.
The researchers pointed that long time financial market volatility was connected with high cortisol and persistent risk avoiding behavior in the traders. "Rising levels of testosterone and cortisol prepare traders for taking risk. However, if testosterone reaches physiological limits, as it might during a market bubble, it can turn risk-taking into a form of addiction, while extreme cortisol during a crash can make traders shun risk altogether," said lead researcher John Coates of the University of Cambridge in England.
Physiology, rather than logics, may dominate sometimes the financial market.
"In the present credit crisis, traders may feel the noxious effects of chronic cortisol exposure and end up in a psychological state known as 'learned helplessness'. If this happens, central banks may lower interest rates only to find that traders still refuse to buy risky assets," explained Coates. "However, biology is often "messier" than the clean-cut numbers embraced by many scientists, including economists and social scientists," Harvard economist Terry Burnham, director of economics at Acadian Asset Management told LiveScience.