Citation

Nofsinger JR, Patterson FM, Shank CA. Econ. Hum. Biol. 2018; 29: 1-16.

Affiliation

Oklahoma State University, United States. Electronic address: corey.shank@okstate.edu.

Copyright

(Copyright © 2018, Elsevier Publishing)

DOI

10.1016/j.ehb.2018.01.003

PMID

29413584

Abstract

We examine the relation between testosterone, cortisol, and financial decisions in a sample of naïve investors. We find that testosterone level is positively related to excess risk-taking, whereas cortisol level is negatively related to excess risk-taking (correlation coefficient [r]: 0.75 and -0.21, respectively). Additionally, we find support for the dual-hormone hypothesis in a financial context. Specifically, the testosterone-to-cortisol ratio is significantly related to loss aversion. Individuals with a higher ratio are 3.4 times more likely to sell losing stocks (standard error [SE]: 1.63). Furthermore, we find a positive feedback loop between financial success, testosterone, and cortisol. Specifically, financial success is significantly related to higher post-trial testosterone and cortisol by a factor of 0.53 (SE: 0.14). Finally, we find that in a competitive environment, testosterone level increases significantly, leading to greater risk-taking than in noncompetitive environment. Overall, this study underscores the importance of the endocrine system on financial decision-making. The results of this study are relevant to a broad audience, including investors looking to optimize financial performance, industry human resources, market regulators, and researchers.

Copyright © 2018 Elsevier B.V. All rights reserved.

Language: en

Keywords

Cortisol; Disposition effect; Risk aversion; Stress; Testosterone