Male sex hormone testosterone is able to influence the rates of traders in the financial markets, forcing them to take risky decisions: put a high price for both buying and selling. It was found out by an international group of scientists, which raised the level of testosterone of young traders and then followed their behavior in the process of trading in the securities market. The article is published in the journal Management Science.
When trading in the securities market, it is necessary to take into account many different factors that can affect the behavior of traders, which can subsequently lead to a risky rate. For example, women traders are much less likely to take risky transactions in the process of trading in securities. Scientists suggest that the reason for this is the excessive production of the male sex hormone testosterone. Until now, however, it has not been systematically shown how exactly this hormone affects the financial behavior of traders. The authors of the new work presented the results of the first experimental evidence of the effect of testosterone levels on the process of trading in securities.
140 young people (average age 23 years) participated in the experiment. Participants were divided into two groups: one group received a dose of testosterone (by applying ointment to the skin of the body), and the other received a placebo. After that, they were asked to participate in the process of buying and selling securities under experimental conditions: volunteers could both bid and ask for a price, receiving, as a result, a small monetary reward. The scientists suggested that participants from the active group (who received testosterone) will make higher rates, and this will lead to frequent occurrence of an economic bubble - a risky situation in which trading in securities takes place at a price very different from the fair (average market).
Researchers measured the level of testosterone and its biologically active form, dihydrotestosterone, before and after applying the ointment (both "active" and placebo). In the blood of participants from the active group, the level of testosterone was 300 nanograms per deciliter higher than in the control group (and in the active group before applying the ointment). The level of dihydrotestosterone increased by 80 nanograms per deciliter.
Source The level of testosterone (left) and dihydrotestosterone (right) to (left on each chart) and after (on the right on each chart) taking the drug.
Then the scientists analyzed the behavior of the participants in the experiment in the process of trading. They found out that the group of participants who received testosterone adhered to the strategy of "buy higher to sell even higher": this increased the level of economic bubbles in the trade by about 20 percent compared to the control group. As for the control group, its participants traded on the less risky principle of "buy lower, sell higher".
Source Graph of the relationship between the proportions of economic bubbles from time to the highest price (T). Light-gray participants of the active group, dark gray - control.
The authors of the work point to the need to take into account the influence of hormones on the process of making financial decisions, because biological factors, in their opinion, can lead traders to risky decisions and, accordingly, financial losses. Financial corporations, in their opinion, can learn a lot from studying the influence of such factors on people's behavior.
The situation in the financial market can be caused by a variety of factors: from the mood of traders to the weather and the political situation in the country.
