There’s a fascinating post on Testosterone, Cortisol and Market Behavior on the website Pure Pedantry. Normally, I’d have a whole lot of caveats and snarky comments to add, but Jake Young does a great job of handling an original research article by Coates and Herbert, ‘Endogenous steroids and financial risk taking on a London trading floor’ (abstract). You should definitely check out Jake’s post if you find this material interesting, as he deals with the article in greater depth. Unlike in my last piece on ‘neuroeconomics’, Bad brain science: Boobs caused subprime crisis, in which I thought the science writer involved was really responsible, in this case, it looks like the authors of the original study are partly to blame, and Young does a good job of highlighting this issue.
The original research paper examines the links between market risk-taking behaviour among traders with endogenous steroids: testosterone and cortisol. Since both are linked to aggression and stress, this would seem to be a good place to study the body’s response to risk taking. But things don’t go brilliantly, as Young suggests: ‘Let’s file this paper under “wildly over-interpreted” because there are some big caveats that you have to remember before you can make a claim anything like [hormone changes lead to market changes and higher market volatility].’
Continue reading “Testosterone and cortisol explain market behaviour?”
