Trading On Testosterone

[Miss_Piggy]

Thought this article was worth posting in its entity

TRADING ON TESTOSTERONE By Dan Mitchell April 19, 2008

MOVEMENTS in financial markets are correlated to the levels of hormones in the bodies of male traders, according to a study by two researchers from the University of Cambridge (newscientist.com).

John Coates, a research fellow in neuroscience and finance, and Joe Herbert, a professor of neuroscience, sampled the saliva of 17 traders on a stock trading floor in London two times a day for eight days. They matched the men’s levels of testosterone and cortisol with the amounts of money the men lost or won on the markets. Men with elevated levels of testosterone, a hormone associated with aggression, made more money. When the markets were more volatile, the men showed higher levels of cortisol, considered a “stress hormone.”

But, as New Scientist asked, “which is the cause and which is the effect?”

According to the researchers’ analysis, the men who began their workdays with high levels of testosterone did better than those who did not.

“The popular view is that experienced traders can control their emotions,” Mr. Coates told New Scientist. “But, in fact, their endocrine systems are on fire.”

As with anything else, when it comes to hormones, it is possible to have (from a trader’s perspective) too much of a good thing. Excessive testosterone levels can lead a trader to make irrational decisions.

New Scientist pointed out that although cortisol can help people make more rational decisions during volatile trading periods, too much of it can lead to serious health problems like heart disease and arthritis, and, over time, diminish brain functions like memory.

If individual traders are affected by their hormone levels, does the same hold true for the markets as a whole? After all, the market is nothing more than an aggregate of the individual actions of traders. Mr. Coates thinks it is possible that “bubbles and crashes are coming from these steroids,” according to New Scientist.

If so, “central banks may lower interest rates only to find that traders still refuse to buy risky assets.”

Perhaps, he told New Scientist, “if more women and older men were trading, the markets would be more stable.”

The study was published by the Proceedings of the National Academy of Sciences (pnas.org).


http://www.nytimes.com/2008/04/19/business/19online.html?_r=1&th&emc=th&oref=slogin


PS Memo to self: Go back a look at which posters made how many trades per month.

 

[rokid]

Miss Piggy,

So very active TSPers with poor returns are real studs?:nuts:----Jim

 

[Miss_Piggy]

Let me think about that for awhile.

 

[hessian]

Hey MP,
Been viewing your posts fo awhile, you usually do come up with some good stuff, some amusing, some really analytic & helpful. This one's gotta take a prize though! Gotta say: Good one, may even be something to it!
I'd just question one thing - if there's anything to this, what's the possible correlation for the Market's summer doldrums - could it be the beach/bikini wear, the male-drive high? Maybe its a male "flush" phenom. during summer ?? \LOL

 

[Miss_Piggy]

Thanks, it's always helpful to be appreciated. As for your theory, I could roll with that

 

[McDuck]

Alarms & Diversions: Money, sex are joined at the cortex

By Bruce Newman
Mercury News
Article Launched: 04/20/2008 01:34:17 AM PDT


In every sex scandal, there arrives a moment when the public delivers its judgment in the form of a question, and the question is always the same: What was he thinking?

(Women, on the other hand, are rarely subjected to this question, and then only when they show up at the Oscars dressed as a swan.)

But based on the findings of two recent research studies - one of them conducted on the Stanford University campus - it appears that sex involves almost no thinking at all. And even more alarmingly, neither does stock trading.

In magnetic resonance imaging (MRI) of young men in the Stanford study, seeing pictures of naked women and taking bigger and bigger gambles in the stock market lit up the exact same spot in the brain.

And a British study, conducted by a former Wall Street trader, found that the stock market players who finished with the biggest profits each day were likely to have started it with levels of testosterone in their system roughly equal to a Tour de France winner. In Silicon Valley, where stock options were the steroids that stirred the drink in the late '90s, that could give a whole new meaning to the bursting of the dot-com bubble.

Was it the Sports Illustrated swimsuit issue that in 1999 induced me to buy eToys at $82 a share? (Damn you, Eva Herzigova!) I wanted to find out, so I went to see Stanford psychology professor Brian Knutson, lead author of the report linking risky behavior to sexual stimulation.

"I bought Sun Microsystems at 125," I said, pushing back a lock of hair to expose my prefrontal cortex to him suggestively. "Can you help me, Doc?"

He explained that erotic images were shown to male Stanford twentysomethings, who were then given money to bet on the market. Sexual stimulation made the subjects likelier to take greater and greater risks, while negative images - such as pictures of snakes and spiders - tended to cause them to hedge their bets.

"We think it's because of emotion, and this is interesting from an economic standpoint, because most classical theories of economic choice don't incorporate emotion as an influence," Knutson said. "Most have what's called the rational actor, or Economic Man, and for him the way to choose which gamble to take is to calculate expected value."

Money remained the reward for taking financial risks, but sex was pushing the study's subjects to go for broke.

In other words, until now the assumption has been that the big swinging picks that come from Wall Street market makers were based on number crunching, and that IPO stood for Initial Public Offering, not Internet Porn Ogling.

Knutson says that when we're dealing with our lives outside work, we're expected to be emotional.

"But when we're at work, the assumption is we're rational, we make reasoned decisions," he said. "And yet that just doesn't appear to be the case. It doesn't allow for some incidental emotional thing that happened to you, such as you took a Prozac, or you got in a fight with your spouse, or the new Playboy just arrived.

"So the question is, are emotional stimuli influencing our decisions at work with finances, even in Silicon Valley?"

Knutson's study, which was published in the March issue of the journal NeuroReport, suggests the findings could have applications in "political domains." And the lead author of the British report, John M. Coates, reported observing fellow traders during the dot-com boom of the late '90s who "seemed to be on a drug."

If that drug was testosterone, and if elevated levels of it can account for risky behavior, does it follow from Coates' suggestion that we'd be better off with "more women and older men in the markets" that the same advice holds true when picking our political leaders?

Is Hillary Clinton (barring any undisclosed hormone replacement therapy) an inherently safer choice to avoid risky behavior in the Oval Office than Barack Obama? And is the 71-year-old John McCain safest of all?

Politics appears to operate by its own set of rules, and in the matter of politics and sex, context is everything.

New York's recently deposed Luv Gov, Eliot Spitzer, was caught ordering up some $2,000-an-hour takeout while visiting Washington, D.C. But Spitzer's sexual treachery might not have been viewed as so mind-boggling an infraction if he hadn't set himself up as a bulwark against immorality of every kind. And been so conspicuously uncuddly about it.

Spitzer could not survive in office more than two days after the scandal broke; not because his thinking was seen as too far inside the Beltway, but rather too much below it. For six years, the capital had been run by Republicans who said they wanted to get government off our backs, and here came a Democrat whose only thought was to get on his - to the tune of about $4,300.

Bill Clinton survived two terms in the White House, despite charges of having had extramarital affairs with Gennifer Flowers, Paula Jones, Kathleen Willey and Monica Lewinsky. But as president, Clinton's claim to power was based on his charm, not his morality. And anyway, as a former governor of Arkansas, he was viewed in official Washington as one step removed from being the mayor of Dogpatch.

Surveying the landscape of romantic ruin, the New York newspaper columnist Murray Kempton once wrote, "There is no more mysterious delusion than our notion that sex is funny. It is, in fact, a dreadful curse. Heterosexuality, being the most pervasive, is the most destructive of mankind's deviations, and has been the cause of more murders than whiskey, more embezzlements than gambling, and . . . more wars than politics. It is a thing whose beauty cannot be mentioned without paying due respect to its terror."

About the name

A brief note on the name of this column, which will appear occasionally in this section:

"Alarms and Diversions" was the title of an anthology published in 1957 by the humorist James Thurber. In this case, however, the act of appropriation is from a now-forgotten memoir of World War I, "Up to Mametz," written by Llewelyn Wyn Griffith of the Royal Welsh Fusiliers.

In the chapter titled "Alarms and Diversions," he writes about preparing for the Battle of the Somme in 1916. It has applications for any writer who hopes to upend received truths and conventional wisdoms.

"If the enemy digs a mine, we must dig another," Griffith wrote, "and if we can dig below him and blow up our mine before he is ready to spring his, we have done well."

Contact Bruce Newman at bnewman@mercurynews.com