Traders tend to take more risks under the influence of hormones testosterone and cortisol and can wreak the financial markets, according to a new study from the Imperial College London.
Researchers who mimicked conditions of a financial trading floor in the lab discovered that trader’s hormone levels in the highly demanding, aggressive environment are raised and make them invest in risky ventures that they would not touch in a normal state.
The study has been published in Scientific Reports, and it was revealed that when the subjects were given doses of cortisol or testosterone, they tended to invest in more risky assets. The subject’s natural hormones were measured in the first experiment. Later the participants were given doses of hormones.
The study is pioneered by Dr. Carlos Cueva, Ph.D., who is the lead author of the study, associated with the department of economics at the University Of Alicante, Spain. He said that studying hormonal changes will help them better understand trader’s behavior especially during periods of financial instability.
It has been seen that cortisol levels in the body is elevated particularly in conditions of stress both physical and psychological. The sugar level in the body is elevated as it prepares for a condition of fight or flight.
The authors feel that the findings will help to create more stable financial institutions. They opine that the results of the study hints that changes in both cortisol and testosterone can play an undermining role in the financial market by provoking the major players to go for risky ventures acting through different behavioral pathways.
Another lead author of the study, Dr. Ed Roberts, from the department of medicine at the UK’s Imperial College London said that the purpose of the study was to understand how these hormones work. It gave a peek into the environment in which the traders get on with their business and think whether it is demanding or too aggressive.