Testosterone Creates A "Winner Effect" In Stock Trading

by Jacob Cherian    April 15, 2008

According to a study from Cambridge University, surges in the level of "hormones" - yes, hormones - may in fact be the driver behind market forces, i.e."boom and bust" economics.

Interestingly, not only is the ubiquitous male hormone testosterone great for procreation, its also the deciding factor in who makes more profits.

In a related study, the Proceedings of the National Academy of Sciences linked cortisol levels to the amount of risks taken by traders. Psychologists also say that this may actually explain the irrational behaviour sometimes seen in investment bankers.

Adding a new twist to the theory, good investors get greedy when Wall Street gets fearful, the researchers found that testosterone levels were higher in traders when they made more than their usual profits - an effect similar to the "winner effect" in athletes.

The study's author, Prof Joe Herbert told BBC News,  "Hormones may be important for determining how well an individual trader performs in the stressful and competitive world of the market."

This work is licensed under a Creative Commons Attribution 3.0 License.

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