Study of male financial traders: The role of biological factors in economic decision making, such as in financial and betting markets, should not be underestimated.
Could the next stock market crash be triggered by an overdose of the male sex hormone?
Growing evidence shows that biological factors affect financial decisions, says a team of researchers with the Ivey Business School in Canada. Testosterone, the primary male sex hormone responsible for many of the physical characteristics in adult males, has been shown to affect economic decision making and is even used as a performance drug among some financial professionals.
It is no secret that most financial traders and most gamblers are male. And, according to research from the Gambling Commission in the UK as quoted by BBC, men are 750% more likely to become problem gamblers than women.
So, when the researchers wanted to investigate how testosterone affects financial decisions it was natural to involve male traders. The research, published in 2017, was the first experimental study to test how testosterone affects trading and prices.
The background for the study
Earlier studies have found that financial markets are heavily influenced by behavioural biases and that investors’ decisions are influenced by mood, sunshine, sports events and other non-market factors, explains the research article titled The Bull of Wall Street: Experimental Analysis of Testosterone and Asset Trading (more info below).
Investors are also affected by their own biological makeup. The study wanted to test the effects of testosterone on males’ trading decisions and the impact of those decisions.
How the experiment was done
140 male financial traders took part in the study, each participating in hundreds of short trading periods during which they evaluated, bought, sold and bid for shares of a financial asset.
The traders were divided in groups for the trading sessions, one group receiving a gel containing testosterone and the other group receiving a placebo gel (containing no testosterone). Of course, the traders did not know which gel they applied.
The amount of testosterone given was a dose of 10 mg, increasing the recipients’ blood testosterone levels to “high normal” compared to the normal levels in their respective age group. These are levels that could be compared to natural testosterone levels after sexual activity or after a success such as a winning trade or bet.
Findings from the study
The researchers found that the traders given extra testosterone behaved more reckless when making financial decisions. They were willing to make higher bids and more prone to forgetting the real value of a financial asset. According to the study, it was demonstrated how the changes in buying and selling behaviour increased the chances of overpricing, financial bubbles and subsequent market crashes.
The research team showed how biology affects economic decisions, They also quoted earlier research on female financial traders showing that they create smaller financial bubbles than their male counterparts.
An article in the Financial Times in 2012 even suggested that financial executives take testosterone supplements to increase performance in stressful situations such as a financial crash. As the research above shows, this could increase the severity of the crash.
As for gambling and sports betting, it is fair to assume (although not a topic in the research) that many of the same mechanisms occur and that pure biology such as testosterone affects decision making when placing bets.
When are testosterone levels high?
Testosterone levels vary from individual to individual, throughout the lifespan of humans and also depending on situations. Testosterone occurs naturally but is, according to Wikipedia, also used as a medication to increase unnaturally low testosterone levels in men and to help cure breast cancer in women. Some athletes use testosterone illegally to increase performance.
Here are some generalisations on testosterone levels:
- On average, levels of testosterone in adult males are 7 to 8 times higher than in adult females
- Testosterone levels decrease as men age
- Testosterone levels follow a rhythm that peaks early each day
- Testosterone levels increase greatly for both sexes after sexual intercourse, somewhat lesser after masturbation
- Testosterone levels in heterosexual men can increase just after having a conversation with a woman (ever wonder why many casinos prefer young female croupiers?)
- Becoming a father generally decreases testosterone levels in men
- According to the health information site Healthline, testosterone levels increase by exercising (especially weight lifting), diet, reducing stress, taking supplements such as vitamins and minerals and getting enough sleep
- High testosterone levels are generally linked to aggressive and irrational behaviour in some men
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Amos Nadler, Peiran Jiao, Cameron J. Johnson, Veronika Alexander, Paul J. Zak (2018)
The Bull of Wall Street: Experimental Analysis of Testosterone and Asset Trading. Management Science 64(9):4032-4051. https://doi.org/10.1287/mnsc.2017.2836
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Lars Dybwad has a passion for sports betting and worked for five years as the “betting expert” in Dagbladet, Norway’s second largest newspaper. Dybwad is not a native English speaker and hopes you find his command of the English language charming rather than annoying.