Correction to This Article
An earlier version of this article incorrectly reported the name of the journal that published the study. It was the Proceedings of the National Academy of Sciences.

Hormones Tied to Traders' Deal-Making, Study Finds


Washington Post Staff Writer
Monday, April 21, 2008; Page A06

It should come as no surprise that Wall Street traders work in a testosterone-saturated world, but scientists now have the first direct evidence that these Masters of the Universe may be bigger slaves to their hormones than anyone realized.

By measuring young male traders' hormone levels as they brokered high-stakes deals, the researchers showed that they tended to make more money on days when their testosterone levels were high. That suggests that the hormone makes them more likely to take profitable risks, but also that it may play a role in pumping up economic bubbles.

The small study also found that traders' levels of the stress hormone cortisol tended to fluctuate with the volatility in markets, indicating that it could be a factor in making brokers more cautious during downturns, helping to puncture speculative bubbles.

Together, the findings raise the provocative possibility that hormones may help drive boom-and-bust cycles, such as the turbulence currently buffeting the financial world.

"Economists have to start recognizing that investors and traders have bodies and that biology can have massive effects on the way they think," said John M. Coates, a senior research fellow at the University of Cambridge in England, whose findings are being published in tomorrow's issue of the Proceedings of the National Academies of Sciences. "If we are just modeling the economy based on the actions of a bunch of rational individuals, we're going to miss out on how powerfully biology can affect economic decision-making."

The findings are part of a growing body of evidence that economic choices are often less rational and more swayed by passions than economists appreciated, Coates and other researchers said.

"It's becoming clear that emotions are very important when it comes to financial decision-making," said Camelia M. Kuhnen, a Northwestern University finance professor who recently published a study in the journal NeuroReport that found men are more likely to risk money after viewing erotic images. "Both these studies indicate that there's a mechanism in the brain that allows emotions to influence financial decisions."

Other researchers praised the new study.

"It's very important," said Aldo Rustichini, who studies economics and neuroscience at the University of Minnesota. "It might give an explanation for irrational exuberance and why a crisis changes into a recession or a depression."

Coates's interest in how hormones affect traders began when he worked on Wall Street during the dot-com bubble of the 1990s.

"The traders seemed to be under the influence of a chemical," he said. "And when the bubble popped, they were like people with a hangover."

Coates knew that the testosterone level of male athletes tends to rise as they prepare to compete and jumps when they win, giving them an edge in the next round by boosting their drive to push the limits. The level drops when they lose, undercutting their self-assurance and chances of staging a comeback.

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