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Cortisol and testosterone increase financial risk taking and may destabilize markets.

Cueva C, Roberts RE, Spencer T, Rani N, Tempest M, Tobler PN, Herbert J, Rustichini A - Sci Rep (2015)

Bottom Line: Specifically, we recorded salivary levels of cortisol and testosterone in people participating in an experimental asset market (N = 142) and found that individual and aggregate levels of endogenous cortisol predict subsequent risk-taking and price instability.We found that both cortisol and testosterone shifted investment towards riskier assets.Our results suggest that changes in both cortisol and testosterone could play a destabilizing role in financial markets through increased risk taking behaviour, acting via different behavioural pathways.

View Article: PubMed Central - PubMed

Affiliation: Departamento de Fundamentos del Análisis Económico, Universidad de Alicante, Spain.

ABSTRACT
It is widely known that financial markets can become dangerously unstable, yet it is unclear why. Recent research has highlighted the possibility that endogenous hormones, in particular testosterone and cortisol, may critically influence traders' financial decision making. Here we show that cortisol, a hormone that modulates the response to physical or psychological stress, predicts instability in financial markets. Specifically, we recorded salivary levels of cortisol and testosterone in people participating in an experimental asset market (N = 142) and found that individual and aggregate levels of endogenous cortisol predict subsequent risk-taking and price instability. We then administered either cortisol (single oral dose of 100 mg hydrocortisone, N = 34) or testosterone (three doses of 10 g transdermal 1% testosterone gel over 48 hours, N = 41) to young males before they played an asset trading game. We found that both cortisol and testosterone shifted investment towards riskier assets. Cortisol appears to affect risk preferences directly, whereas testosterone operates by inducing increased optimism about future price changes. Our results suggest that changes in both cortisol and testosterone could play a destabilizing role in financial markets through increased risk taking behaviour, acting via different behavioural pathways.

No MeSH data available.


Related in: MedlinePlus

Aggregate pricing away from fundamental value and ex-ante average endogenous cortisol(A) and testosterone (B) in the asset market experiment.Each data point represents one market (female-only markets excluded). Line fitted from a linear regression. Shaded areas represent the 90% and 95% CI of the predicted mean. Ex-ante cortisol is significantly correlated with subsequent NAD in the market (linear regression with robust sandwich variance estimator, t = 2.63, P = 0.027, R2 = 0.338). Testosterone is not correlated with subsequent NAD in the market (linear regression with robust sandwich variance estimator, t = −0.00, P = 0.996, R2 < 0.001).
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f2: Aggregate pricing away from fundamental value and ex-ante average endogenous cortisol(A) and testosterone (B) in the asset market experiment.Each data point represents one market (female-only markets excluded). Line fitted from a linear regression. Shaded areas represent the 90% and 95% CI of the predicted mean. Ex-ante cortisol is significantly correlated with subsequent NAD in the market (linear regression with robust sandwich variance estimator, t = 2.63, P = 0.027, R2 = 0.338). Testosterone is not correlated with subsequent NAD in the market (linear regression with robust sandwich variance estimator, t = −0.00, P = 0.996, R2 < 0.001).

Mentions: Cortisol at 14:00h was significantly correlated with our main measure of interest, NAD (t = 2.57, P = 0.037, R2 = 0.427), with amplitude (t = 2.84, P = 0.025, R2 = 0.356) and marginally with RAD (t = 2.17, P = 0.066, R2 = 0.316) in male and mixed markets but not in female-only markets (P > 0.3, see supplementary table 4). A simple linear prediction of pre-auction cortisol on NAD explains around 1/3 of the variability in male and mixed markets (R2 = 0.338, see Fig. 2). There was no correlation between 16:00h cortisol or testosterone levels and NAD, amplitude or RAD in any of the markets (P > 0.3).


Cortisol and testosterone increase financial risk taking and may destabilize markets.

Cueva C, Roberts RE, Spencer T, Rani N, Tempest M, Tobler PN, Herbert J, Rustichini A - Sci Rep (2015)

Aggregate pricing away from fundamental value and ex-ante average endogenous cortisol(A) and testosterone (B) in the asset market experiment.Each data point represents one market (female-only markets excluded). Line fitted from a linear regression. Shaded areas represent the 90% and 95% CI of the predicted mean. Ex-ante cortisol is significantly correlated with subsequent NAD in the market (linear regression with robust sandwich variance estimator, t = 2.63, P = 0.027, R2 = 0.338). Testosterone is not correlated with subsequent NAD in the market (linear regression with robust sandwich variance estimator, t = −0.00, P = 0.996, R2 < 0.001).
© Copyright Policy - open-access
Related In: Results  -  Collection

License
Show All Figures
getmorefigures.php?uid=PMC4489095&req=5

f2: Aggregate pricing away from fundamental value and ex-ante average endogenous cortisol(A) and testosterone (B) in the asset market experiment.Each data point represents one market (female-only markets excluded). Line fitted from a linear regression. Shaded areas represent the 90% and 95% CI of the predicted mean. Ex-ante cortisol is significantly correlated with subsequent NAD in the market (linear regression with robust sandwich variance estimator, t = 2.63, P = 0.027, R2 = 0.338). Testosterone is not correlated with subsequent NAD in the market (linear regression with robust sandwich variance estimator, t = −0.00, P = 0.996, R2 < 0.001).
Mentions: Cortisol at 14:00h was significantly correlated with our main measure of interest, NAD (t = 2.57, P = 0.037, R2 = 0.427), with amplitude (t = 2.84, P = 0.025, R2 = 0.356) and marginally with RAD (t = 2.17, P = 0.066, R2 = 0.316) in male and mixed markets but not in female-only markets (P > 0.3, see supplementary table 4). A simple linear prediction of pre-auction cortisol on NAD explains around 1/3 of the variability in male and mixed markets (R2 = 0.338, see Fig. 2). There was no correlation between 16:00h cortisol or testosterone levels and NAD, amplitude or RAD in any of the markets (P > 0.3).

Bottom Line: Specifically, we recorded salivary levels of cortisol and testosterone in people participating in an experimental asset market (N = 142) and found that individual and aggregate levels of endogenous cortisol predict subsequent risk-taking and price instability.We found that both cortisol and testosterone shifted investment towards riskier assets.Our results suggest that changes in both cortisol and testosterone could play a destabilizing role in financial markets through increased risk taking behaviour, acting via different behavioural pathways.

View Article: PubMed Central - PubMed

Affiliation: Departamento de Fundamentos del Análisis Económico, Universidad de Alicante, Spain.

ABSTRACT
It is widely known that financial markets can become dangerously unstable, yet it is unclear why. Recent research has highlighted the possibility that endogenous hormones, in particular testosterone and cortisol, may critically influence traders' financial decision making. Here we show that cortisol, a hormone that modulates the response to physical or psychological stress, predicts instability in financial markets. Specifically, we recorded salivary levels of cortisol and testosterone in people participating in an experimental asset market (N = 142) and found that individual and aggregate levels of endogenous cortisol predict subsequent risk-taking and price instability. We then administered either cortisol (single oral dose of 100 mg hydrocortisone, N = 34) or testosterone (three doses of 10 g transdermal 1% testosterone gel over 48 hours, N = 41) to young males before they played an asset trading game. We found that both cortisol and testosterone shifted investment towards riskier assets. Cortisol appears to affect risk preferences directly, whereas testosterone operates by inducing increased optimism about future price changes. Our results suggest that changes in both cortisol and testosterone could play a destabilizing role in financial markets through increased risk taking behaviour, acting via different behavioural pathways.

No MeSH data available.


Related in: MedlinePlus