In a paper called ‘The Bull of Wall Street: Experimental Analysis of Testosterone and Asset Trading’, experts gave 140 young men an edible gel containing either a placebo or testosterone.
The participants were then set an experimental task where they had to post bids and ask prices of assets, as well as buying and selling financial assets to earn money.
The researchers found that among the group which received extra testosterone, larger price bubbles formed, there was more mispricing and their perception of a stock’s value changed dramatically.
The scientists also found that those who had increased testosterone had an increase in bidding and selling volume.
The study, in the journal Management Science, says that the people who had placebos had a “buy low to sell high” while the testosterone induced men had a “buy high to sell higher” attitude.
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The research suggests that biology strongly influences trading behaviour and how higher levels of testosterone among young men could be damaging the stock market.
Co-author of the research, Amos Nadler of the Ivey Business School at Western University, said: “This research suggests the need to consider hormonal influences on decision-making in professional settings, because biological factors can exacerbate capital risk.
“Perhaps the simplest recommendation is to implement ‘cool down’ periods to interrupt exceptionally positive feedback cycles and return the focus to assets’ fundamental valuations to reduce the possibility of biased decision-making.
“Based on our findings, professional traders, investment advisories, and hedge funds should limit the risk taken by young male traders.
“This is the first study to have shown that testosterone changes the way the brain calculates value and returns in the stock market and therefore testosterone’s neurologic influence will cause traders to make suboptimal decisions unless systems prevent them from occurring.”