The hormones testosterone and cortisol may destabilise financial markets by making traders take more risks, according to a new study.
Researchers simulated the trading floor in the lab by having volunteers buy and sell assets among themselves. They measured the volunteers' natural hormone levels in one experiment and artificially raised them in another.
When given doses of either hormone, the volunteers invested more in risky assets.
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The researchers believe the stressful and competitive environment of financial markets may promote high levels of cortisol and testosterone in traders.
Cortisol is elevated in response to physical or psychological stress, increasing blood sugar and preparing the body for a fight-or-flight response.
Previous studies have shown that men with higher testosterone levels are more likely to be confident and successful in competitive situations.
The researchers suggest the findings should be considered by policymakers looking to develop more stable financial institutions.
"Our view is that hormonal changes can help us understand traders' behaviour, particularly during periods of financial instability," said Dr Carlos Cueva, one of the lead authors of the study, from the Department of Economics at the University of Alicante in Spain.
"Our aim is to understand more about what these hormones do. Then we can look at the environment in which traders work, and think about whether it's too stressful or too competitive," said Dr Ed Roberts, one of the lead authors of the study, from the Department of Medicine at Imperial College London.
"These factors could be affecting traders' hormones and having an impact on their decision-making," Roberts said.
First the researchers measured levels of the two hormones in saliva samples of 142 volunteers, male and female, playing an asset trading game in groups of around 10.
Those who had higher levels of cortisol were more likely to take risks, and high levels in the group were associated with instability in prices.
In a follow-up experiment, 75 young men were given either cortisol or testosterone before playing the game, once with the hormone and once on a placebo. Both hormones shifted investment towards riskier assets.
Cortisol appeared to directly affect volunteers' preference for riskier assets, while testosterone seemed to increase optimism about how prices would change in the future.
"The results suggest that cortisol and testosterone promote risky investment behaviour in the short run," said Roberts.
"We only looked at the acute effects of the hormones in the lab. It would be interesting to measure traders' hormone levels in the real world, and also to see what the longer term effects might be," he said.
The study is published in the journal Scientific Reports.
