High levels of the male hormone testosterone, provide a dramatic boost to the confidence and drive of the most successful stock traders, according to a British study published Monday.
Researchers at Cambridge University found that testosterone also appears to increase traders' appetite for risk-taking -- a quality likely to enhance the performance of those who earn a living in the high-stakes world of the stock market.
"Market traders, like some other occupations (such as air traffic controllers), work under extreme pressure and the consequences of the rapid decisions they have to make can have profound consequences for them, and for the market as a whole," said Professor Joe Herbert, Cambridge Center for Brain Repair, one of the researchers on the study, which was to be published Monday in the Annals of the National Academy of Sciences.
The researchers also noted that success fueled by testosterone feeds itself, in part because it leads to the production of even more testosterone.
In male athletes, for example, testosterone levels rise prior to competition, and rise even further in a winning athlete, but decrease in a losing one.
The phenomenon called the "winner effect," can increase confidence and risk-taking and improve chances of winning yet again, in a positive feedback loop.
"Hormones may also be important for determining how well an individual trader performs in the highly stressful and competitive world of the market. We are now exploring this in much more detail," the researchers wrote.
The study followed 17 male traders in the City of London for eight consecutive business days.
To measure the traders' hormones, they took saliva samples twice per day at 11:00 am and 4:00 pm, times that fell before and after the bulk of the days trading. At each sampling time, traders recorded the traders' profits and losses for the day.
They found that daily testosterone levels were significantly higher on days when traders had a higher than customary daily average.
On the down side however elevated testosterone may explain why stock traders sometimes make irrational choices that lead to bubbles and crashes.
Researchers speculated that if testosterone levels continued to rise or became chronically elevated, it could prompt traders to engage in reckless risk-taking and undermine their profitability.
They noted that earlier studies have linked administered testosterone to impulsivity, sensation-seeking and harmful risk-taking.
Dr. John Coates, lead author of the study said: "If testosterone reaches physiological limits, as it might during a market bubble, it can turn risk-taking into a form of addiction."
Coates, himself a former trader, added: "At times like these economics has to consider the physiology of investors, not just their rationality."