Male Testosterone Can Be Bad for the Economy

Here’s yet another reason to advocate for more gender equality on Wall Street: male investors may be subject to market-shifting hormonal surges.

An international team of economists and neuroscientists write in Nature that the hormones cortisol and testosterone can affect men’s optimism and preferences for risky investments, and might play a role in destabilizing financial markets.

A total of 142 men and women between 18 and 30 years old played an asset-trading computer game simulating stock market exchanges. Their saliva was tested for hormonal levels at the beginning of the session, after they made a trade, and at the end of the session. In follow-up trials, 30 young men received either a tablet of hydrocortisone or a placebo before they began a stock investment task, and 36 young men received either a dose of testosterone or a placebo. The tasks all involved real money as prizes.

Higher levels of naturally-occurring cortisol—which plays a role in the human stress response—at the beginning of the first task was associated with significantly more trading activity for men, but not for women. Cortisol was also associated with price instability in markets between male traders or groups of male-female traders, but not in female-only trading groups. In the trials with administered cortisol and testosterone, both hormones increased men’s investment in higher risk stocks.

The researchers found that cortisol increased subjects' willingness to take risks:

“When professional traders undergo situations of high stress and elevated cortisol, such as before and after the release of important economic indicators^, raised cortisol might therefore encourage riskier trading,” they write. “If riskier trading in turn destabilizes prices further, cortisol may exacerbate the stock market’s reaction to new information.”

Testosterone, on the other hand, made them more optimistic about whether stock prices would increase. The hormone "may help to sustain the upward momentum of a bull market, in which high profits fuel optimism about future price increases and lead to further risk taking," according to the researchers. "Depending on the situation, this feedback mechanism could be maladaptive and encourage traders to 'ride' a stock market bubble for too long."

While this study examined men’s behavior in the lab, which might not translate exactly to real-life trading preferences, several previous studies have linked testosterone to financial risk-taking and profits, and a 2008 study of actual traders in London similarly linked testosterone and cortisol to changes in investment behavior.