How hormones affect the financial industry

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09 February, 2015 Dr. Linda Friedland Executive Health

We have known for ages just how dramatically female hormones affect  moods and wellbeing. However, we now have first-of-its-kind data that will help us understand more about the male drive (beyond sex).

An interdisciplinary group of scientists from the University of Cambridge decided to take a look at trading behaviours of male brokers, and found that sell-and-buy decisions, and their successes, are often linked to testosterone and cortisol. Testosterone controls competitive and sexual behaviour. Testosterone in male athletes, for example, will rise prior to a competition and rise even further after a win. This increase of testosterone in the winner seems to increase confidence and risk-taking and improve chances of winning yet again.

…too much testosterone can have a detrimental effect on the ability to rationally assess risk

The researchers, Coates and Herbert, collected saliva at 11am and 4pm for eight straight working days, and measured the amount of testosterone and cortisol each time. The study showed that high levels of testosterone and the profit tend to occur together; i.e. they are correlated. They also speculated that if testosterone continued to rise or became chronically elevated, it could begin to have the opposite effect on a trader’s profitability by increasing risk-taking to unprofitable levels.

The researchers also examined the effects of increased levels of cortisol. Traders experienced acutely raised cortisol when the market was more volatile, and when there were chances of making more money. The researchers suggest, however, that rising cortisol levels can reduce appetite for risk: that is, affect a trader’s risk-taking in the opposite direction to testosterone.

Michael Sinclair, consultant psychologist to practices in the London financial district, explains that there is a great sense of urgency and anxiety around the mental and physical health of financial market professionals. “Cortisol has massive effects on brain function, it makes you anxious, sometimes depressed, causes you to react more strongly to adversity and to remember adversity. It’s a rather depressing hormone.

The researchers suggest that one way to counter the intense risk-taking and crashes is to ensure more females and slightly older males (with not quite as surging testosterone levels) are well represented on the trading floor to temper these intense fluctuations.

At financially stressful times like these, economists need to seriously consider our physiology and hormones. Perhaps now us oestrogen-producers will no longer bear the brunt of those PMT and hormone jokes. We may even be taken more seriously, as oestrogen becomes a coveted commodity in the workplace.