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.

Unleashing Animal Spirits - Self-Control and Overpricing in Experimental Asset Markets

“…7 Trader inexperience and confusion have been considered as one of the aggravating factors of overpricing (Dufwenberg et al, 2005;Kirchler et al, 2012), andBosch-Rosa et al (2018), for example, show that grouping traders by cognitive skills leads to increased overpricing for groups with low cognitive sophistication. Nadler et al (2017) provide evidence that giving testosterone to a group of male participants significantly increases prices, and Petersen and Spickers (2015) find that inducing stress decreases overpricing. In line with our findings, Dickinson et al (2017) report that sleepy traders generate more overpricing.…”

The Mediating Effect of Representativeness Heuristic on Neurofinance and SME's Financial Decision Making

“…Frequently, the participants of previous laboratory experiment (Dorow et al, 2018;Bothma, 2018;Efremidze et al, 2017;Egidi & Sillari, 2017;Nadler et al, 2017;Frydman & Camerer, 2016;Frydman, 2015;Jiao, 2014) are involved students who are unlikely to be representative of the general population that lead their responses to the experimental treatment may be distinctive (Bryman & Bell, 2015). The evidence of Pelaelo & Swami (2014) study on the tertiary level students in financial decision making that give low impact to the economy as a whole.…”