Indy Telecom & Industrial Media

There is some interesting research being done on the relationship between human behavior and the markets.

The idea is that steroid and cortisol levels may be indicators of how people interact with the markets, and consequently, how this could be affecting the economy as a whole. In this interview with the Naked Scientist, John Coates talks about some of the work his team is doing.

Meera – How did you go about actually testing this in City traders?

John – I got access to the floor in the City and we took salivery steroids from a group of traders over a two week period to test that steroids were in fact responding to the money they were making and losing in the market and whether this, in turn, was affecting their trading performance.

Meera – What did you find?

John – We found that the traders, if they had high testosterone in the morning relative the the median levels, they made a lot more money for the rest of the day than they did on the days when they had low testosterone.

Now, what I’m particularly curious about is when this research was conducted. Because if this was indeed done during a bullish market, then there is a much higher chance that risk takers were rewarded, rather than punished.

Meera – When most people think of testosterone they obviously associate it largely with males. Does this then mean that females are relatively unaffected?

John – Women have about 10% of the testosterone that men do. It’s entirely possible that they’re not subject to this kind of overconfidence.

Meera – But you’re also looking into levels of cortisol, as well.

John – That’s right. In the current environment that may be the more interesting steroid. When the market turns around it turns into a crash what can happen is that cortisol, which is a stress hormone, can become elevated in the bodies of traders. Cortisol, if you’re exposed to it chronically at high levels for a long period of time, it can have a devastating effect on both the mind and the body. In terms of affecting traders decisions what it can do is affect the memories you recall. You tend to recall bad memories, negative precedents. You tend to see risk where maybe there is none. You become fearful, you feel anxiety. I think that decreases a trader’s appetite for risk. While testosterone is causing people to take too much risk cortisol is causing people to take too little risk in the crash.

Meera – What do you think the current situation is now? Do you think there are going to be higher levels or cortisol in the traders at the moment?

John – It’s not only how far the market has fallen. It’s how long it’s been falling. These traders have been under stress for almost a year and a half now. Their cortisol levels must be elevated. I’m sure there’s a very good chance it’s affecting their decisions.

You can also download the MP3 of the interview, or listen to it on the website.