Stressed out market traders may be at the mercy of their hormones - and making bad financial decisions as a result. [Photo: Bigstock]

Stressed, ‘hormonal’ traders may destabilise financial markets

30 July, 2015

Natural Health News — The hormones testosterone and cortisol may destabilise financial markets by making traders take more risks, according to a new study.

For this unique ‘mind and body’ study researchers simulated the trading floor in the lab by having volunteers buy and sell assets among themselves. They measured the volunteers’ natural hormone levels in one experiment and artificially raised them in another.

When given doses of either hormone, the volunteers invested more in risky assets.

The authors of the new study, published in Scientific Reports, suggest the findings should be considered by policymakers looking to develop more stable financial institutions.

What you need to know

» The stressful and competitive environment in which market traders work, can raise levels of the stress hormone cortisol and the male hormone testosterone.

» This combination of hormones – in men but not women – was found to make traders take more unnecessary risks

» UK researchers suggest that these biochemical changes, played out in real world conditions, could lead to financial instability.

“Our view is that hormonal changes can help us understand traders’ behaviour, particularly during periods of financial instability,” said Dr Carlos Cueva, one of the lead authors of the study, from the Department of Economics at the University of Alicante.

Dr Ed Roberts, one of the lead authors of the study, 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.”

Men particularly vulnerable

First the researchers measured levels of the two hormones in saliva samples of 142 volunteers, male and female, playing an asset trading game in groups of around 10. Those who had higher levels of cortisol were more likely to take risks, and high levels in the group were associated with instability in prices.

The effect of the hormones was seen in males and mixed groups but not in females.

In a follow-up experiment, 75 young men were given either cortisol or testosterone before playing the game, once with the hormone and once on a placebo. Both hormones shifted investment towards riskier assets. Cortisol appeared to directly affect volunteers’ preference for riskier assets, while testosterone seemed to increase optimism about how prices would change in the future.

New explanation for an old problem

Economists have long recognised that the unpredictability of human behaviour can make financial markets unstable. 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. However, scientists have only recently begun to explore the physiological basis for this phenomenon.

“The results suggest that cortisol and testosterone promote risky investment behaviour in the short run,” said Dr Roberts who adds that it would be interesting to measure traders’ hormone levels in the real world, and also to see what the longer term effects might be.