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Stress Hormones and the Financial Crisis

June 19, 2011

The relatively new science of neuroeconomics is showing interesting insights into business decision-making: Why is the willingness to take (financial) risks shifting when circumstances change and how do uncertainty and stress influence our perception? The Guardian writes about Joe Herbert and John Coates’ research about the behaviour of London City stock market traders. They concluded that basic elements such as testosterone and the stress hormone cortisol have a large impact on the traders’ ability to engage in rational choices. They even found that a traders’ morning testosterone level could be used to predict his day’s profitability.
They found traders often to be either high on testosterone or overwhelmed by cortisol so that they became price insensitive. The best way of preventing a new crisis would be to have more women and older men – less driven by those hormones – in the financial markets. “We know that opinion diversity is crucial to stable markets. What no one talks about is endocrine diversity, a diversity of hormones.”
 
More Reading:

The Guardian Article.
 
About Neuroeconomics.
  
About Joe Herbert.
 
About John Coates.

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