title: Cortisol and testosterone increase financial risk taking and may destabilize markets.
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.
authors.affiliation: Departamento de Fundamentos del Análisis Económico, Universidad de Alicante, Spain.
authors.forename: Carlos
authors.initials: C
authors.lastname: Cueva
authors.affiliation: Division of Brain Sciences, Department of Medicine, Imperial College London, UK.
authors.forename: R Edward
authors.initials: RE
authors.lastname: Roberts
authors.affiliation: 1] Department of Psychiatry, University of Cambridge, UK [2] Cambridgeshire and Peterborough NHS Foundation Trust, Elizabeth House, Fulbourn Hospital, Cambridge, UK.
authors.forename: Tom
authors.initials: T
authors.lastname: Spencer
authors.affiliation: Cambridgeshire and Peterborough NHS Foundation Trust, Elizabeth House, Fulbourn Hospital, Cambridge, UK.
authors.forename: Nisha
authors.initials: N
authors.lastname: Rani
authors.affiliation: Royal College of Psychiatrists, UK.
authors.forename: Michelle
authors.initials: M
authors.lastname: Tempest
authors.affiliation: Laboratory for Social and Neural Systems Research, Department of Economics, University of Zurich, Switzerland.
authors.forename: Philippe N
authors.initials: PN
authors.lastname: Tobler
authors.affiliation: John van Geest Centre for Brain Repair, Department of Clinical Neurosciences, University of Cambridge, UK.
authors.forename: Joe
authors.initials: J
authors.lastname: Herbert
authors.affiliation: 1] Department of Economics, University of Minnesota, USA [2] Department of Physiology, Development and Neuroscience, University of Cambridge, UK.
authors.forename: Aldo
authors.initials: A
authors.lastname: Rustichini
mesh_terms: D000293:Adolescent; D000328:Adult; D003657:Decision Making; D005260:Female; D005717:Games, Experimental; D006801:Humans; D006854:Hydrocortisone / Q000502:physiology*; D007449:Investments; D008297:Male; D012309:Risk-Taking; D012463:Saliva / Q000378:metabolism; D013739:Testosterone / Q000502:physiology*; D055815:Young Adult
chemical_list: D013739:Testosterone; D006854:Hydrocortisone