The Bull of Wall Street: Experimental Analysis of Testosterone and Asset Trading

Abstract

Growing evidence shows that biological factors affect individual financial decisions that could be reflected in financial markets. Testosterone, a chemical messenger especially influential in male physiology, has been shown to affect economic decision making and is taken as a performance enhancer among some financial professionals. This is the first experimental study to test how testosterone causally affects trading and prices. We exogenously elevated testosterone in male traders and tested testosterone's effect both on their trading behavior in experimental asset markets and on the size and duration of asset price bubbles. Using both aggregated and individual trading data, we find that testosterone administration generated larger and longer-lasting bubbles by causing high bids and the slow incorporation of the asset's fundamental value.

Does testosterone impair men's cognitive empathy? Evidence from two large-scale randomized controlled trials

“…The doses in both experiments are commonly prescribed daily to men with low circulating testosterone levels and serve as two distinct physical transport channels (transdermal and intranasal, respectively) to reduce the probability that behavioural effects are transport channel-specific. Various studies show significant heterogeneity in change in testosterone levels depending on delivery method, location of application in the body and biofluid measured [15,22,25,28,30,33]. However, all the exogenous delivery methods in this particular literature cause a common hormonal trajectory characterized by a rapid initial rise, a peak above typical circulating levels, and eventual return to baseline.…”

“…7 Therefore, we had all participants return to the laboratory 4.5 h after receiving gel, when androgen levels were elevated and stable. We used a 100 mg transdermal dose, which quickly elevates then holds testosterone levels high and stable for approximately 24 h [26] and was shown to generate effects on cognition, decision-making and other behaviours [28][29][30][31][32].…”

Testosterone increases risk-taking for status but not for money

“…Our findings are of relevance for previous research reporting an overall positive but weak association of testosterone and monetary risk-taking (Cueva et al, 2015;Goudriaan et al, 2010;Nadler et al, 2017;van Honk et al, 2004;Welker, Roy, Geniole, Kitayama, & Carré, 2019). Besides differences in methodologies and sex/gender of the samples (previous work mainly used female participants), most of the studies have not manipulated the relative social status or accounted for the implications for one's social status as a contextual factor in their design and analysis.…”

“…Of the several investigations on the causal influence of exogenous testosterone on risk-taking, only half reported positive or mixed evidence (Cueva et al, 2015;Goudriaan et al, 2010;Nadler, Jiao, Johnson, Alexander, & Zak, 2017;van Honk et al, 2004;Wu et al, 2016), whereas others found no statistically significant effect (Boksem et al, 2013;Zethraeus et al, 2009). In sum, both correlational and testosterone administration studies demonstrate that testosterone's influence on risk-taking remains debated.…”

Testosterone, Cortisol and Financial Risk-Taking

“…These findings are associations, and unless there is considerably more information on individual strategies, supported by interventional studies, the level of analysis is limited. Interestingly, giving testosterone to traders playing an economic game that resembled real-life resulted in increased price offers (i.e., mispricing) and over-optimism about future changes in asset values (Nadler et al, 2017 ) and non-professional subjects showed similar effects, together with increased appetite for risk (Cueva et al, 2015 ). Thus, testosterone appears to increase individual willingness to take financial risks because it biases estimates of outcome.…”