Money makes the world go round, so the old saying goes. But according to new research, when it comes to the choices which decide whether large amounts of that money is made or lost, particularly on the stock market, it’s testosterone pulling the strings.
You might think this is great news. We know that high T can be a winning formula and many successful guys have high levels. However, a team at Ben-Gurion University of the Negev (BGU) now suggest that the spike in test men receive after a success fuels a sense of ‘psychological momentum.‘
That’s feeling like your on an winning streak to you and I. The theory is that in a financial setting, the confidence higher testosterone brings leads to traders taking more risks. Risks that can ultimately cause a dreaded stock market bubble.
Funnily enough to explore how momentum affects actions and what role T plays, researchers turned not to the white collar world of finance, but to the white (and sometimes blue) collar world of judo.
They looked at two different samples from men’s and women’s competition for a period of 4 years from 2009 to 2013.
Dr. Danny Cohen-Zada, a lecturer in the BGU Department of Economics, explains:
The first sample looked at bronze medal matches, where both competitors had the same amount of wins, but one had won the match immediately before fighting for their medal, whilst the other had lost. The idea was see if a sense of momentum gave an advantage.
What they found was a clear trend affecting one set of subjects and not the other. Dr. Alex Krumer of the Swiss Institute for Empirical Economic Research (SEW), reports:
The second part of the study examined the head to head records of rivals in men’s and women’s judo across a number of tournaments. It was again to see if sucessful momentum going into a bout could influence the outcome. As suspected, the effect on men was marked, while momentum had little impact on women.
Okay, so at first glance judo and financial markets don’t appear to have a lot in common. Apart from both often involving quite a lot of tossers. But the key is testosterone.
The research team believe it’s a rise in T brought about by success, expierenced only by men which drives psychological momentum, leading guys to take more an bigger risks. In a market setting pushing the envelope too far could cause pricing bubbles.
Dr. Ze’ev Shtudiner from the Department of Economics and Business Administration, Ariel University, Israel:
Past work has shown that guys with plenty of money usually have higher testosterone and that higher test can increase the competitive urge to succeed and take risks. With such a combustible cocktail largely steering the world’s financial market, it’s easy to see why there could be problems.
Seems to us T in the workplace, especially one that deal with the world’s wealth, is like T in your body. A healthy balance is vital.
Testosterone has amazing performance and health benefits, but ridiculous amounts spell trouble. It’s like fire, it can cook your dinner or burn your house down .
90% men is pretty high. Maybe more estrogen on the trading floor would be useful to put the brakes of this psychological momentum. Strong choices in finance will always need the confidence T brings, but nobody wants a market on steroids.