A total of 142 male and female subjects were involved in the first experiment, submitting saliva samples to measure for levels of cortisol and testosterone. They were then divided into groups of about ten people, and asked to play an asset trading game. It was found that those with higher cortisol levels had more tendencies to take risks, particularly on more volatile-priced assets.
A second experiment was conducted, involving 75 young men who were given cortisol or testosterone, then asked to play the same game. It was revealed that both hormones contributed to their tendency to take risks on assets. Cortisol specifically had an effect on the subjects gravitating toward riskier assets, while those on testosterone were seemingly more positive regarding price changes.
“Our view is that hormonal changes can help us understand traders’ behavior, particularly during periods of financial instability,” said lead author Dr. Carlos Cueva of the University of Alicante in Spain. He observed that changes in both cortisol and testosterone levels “could play a destabilizing role in financial markets” due to investors’ tendencies to take more risks through “different behavioral pathways.”
As this was just a series of experiments, another lead author, Dr. Ed Roberts of the Imperial College London, said that his team’s goal is to understand what cortisol and testosterone do on a more in-depth level. “Then we can look at the environment in which traders work, and think about whether it’s too stressful or too competitive,” he added. “…We only looked at the acute effects of the hormones in the lab. It would be interesting to measure traders’ hormone levels in the real world, and also to see what the longer term effects might be.”