Are market bubbles caused by traders' testosterone levels?

testosterone
Ball-and-stick model of the testosterone molecule, C19H28O2, as found in the crystal structure of testosterone monohydrate. Credit: Ben Mills/Wikipedia

Research conducted at Ben-Gurion University of the Negev (BGU) has determined that psychological momentum significantly affects performance among men but not among women, which may account for exaggerated risk-taking in financial and business endeavors among males.

Psychological momentum is defined as a state-of-mind where an individual or a team feels things are going unstoppably their way and is known to be caused, among other factors, by shifts in . The study, "Psychological Momentum and Gender," is published in the March volume of the Journal of Economic Behavior & Organization.

According to Dr. Danny Cohen-Zada, a lecturer in the BGU Department of Economics, "The purpose of our study was twofold: to estimate the causal effect of psychological momentum on performance in real tournament settings, and to examine whether there are any gender differences in the corresponding response."

The researchers analyzed two different samples of men's and women's judo competitions from 2009 to 2013. In the first, they looked at the bronze medal fights of each tournament. While competitors in this fight won the same number of total bouts, some had won their most recent bout while others did not. Those who reached the bronze medal fight following a win have a potential momentum advantage.

The authors examined this unique setting to determine whether the contestants with the momentum advantage had a higher probability to win the fight.

"Our results showed that based on a cross-section analysis of 106 men's and 111 women's fights from eight major annual judo events, having a psychological momentum advantage significantly increases the winning probability in men's contests but not in women's," says Dr. Alex Krumer of the Swiss Institute for Empirical Economic Research (SEW), University of St. Gallen, Switzerland.

In the second part of the study, based on the head-to-head history of the pairs from the first sample and analyzing 225 men's and 231 women's fights, the researchers obtained similar results by analyzing how the performance of the same pair of judokas (judo experts) is affected by varied momentum statuses in different tournaments. As expected, the results of these specifications indicate that the psychological momentum effect exists among men, but not among women.

The researchers believe that their findings have implications for business. "We can connect our findings to the effect of psychological momentum in financial markets of which 90 percent are men," says Dr. Ze'ev Shtudiner from the Department of Economics and Business Administration, Ariel University, Israel. Drs. Krumer and Shtudiner earned their doctoral degrees in economics from BGU.

"Such an effect may lead male traders, driven by an increase in testosterone due to a successful investment, to take exaggerated risks, which, in turn, create price bubbles," says Dr. Shtudiner. "By increasing the number of women in financial markets, it may be possible to stabilize these markets since women have less dramatic shifts in testosterone levels, which can make them less prone to the momentum effect. This argument is consistent with our results that momentum effects are generated only among men, since it is only among them that testosterone levels increase after success."

According to Dr. Krumer, "An increased frequency of positive feedback from managers after successful actions may turn into a positive psychological momentum and thus increase productivity. Similarly, managers should exert efforts to reduce the influence of unsuccessful actions of their workers to avoid productivity losses."

Given these findings, Dr. Cohen-Zada believes additional research would be beneficial focusing on the role of psychological effects on performance in male-dominated positions, such as stockbrokers, high-profile managers, politicians, and military commanders.


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More information: Danny Cohen-Zada et al, Psychological momentum and gender, Journal of Economic Behavior & Organization (2017). DOI: 10.1016/j.jebo.2017.01.009
Citation: Are market bubbles caused by traders' testosterone levels? (2017, March 1) retrieved 19 April 2019 from https://phys.org/news/2017-03-traders-testosterone.html
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Mar 01, 2017
Is this the cause of the stock market, now at all-time highs? These is no reason for it, but more "irrational exuberance".

If so, Trump will lead us into the Third Great Republican Depression.

Mar 13, 2017
The above comment is idiotic and gkam must be illogical!

As far as the study goes, Helene Meisler would prove the study insignificant and lacking in practical sense!

Testosterone has nothing to do with market bubbles and investment! If anything testosterone has something to do with men hating on the market bubbles. See the above comment for proof of the hate. Testosterone men that lack in research and experience always love to say that the bubble will pop, and the market will crash. What the men don't realize is that even if the market crashed 10% or the bubble popped 10%( which hasn't happened in many years) the final price point at the bottom of the 10% would only set the market back to where it was located election day Novemeber 16th. So a market crash wouldn't actually be a crash, even if it did it happen. And, believe me, it won't! I started investment research in 1990! I can't say I can predict the future, but I can gauge the fundamentals properly!

Mar 13, 2017
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