Specifically, we predicted that testosterone would rise on day swhen traders made an above-average gain in the markets, and cortisol would rise on days when traders were stressed by anabove-average loss. Our data confirmed the first prediction but suggested that cortisol responds more to uncertainty of return than to loss.
Research into how this may happen is in its infancy, but recentwork in neuroscience and economics has shown how variousbrain regions, such as the amygdala (13–15), the anterior insula(16), and the nucleus accumbens (16, 17), encode decisions and behaviors that deviate from rational choice. It has been suggested that, if these brain regions are overactivated, then investors will display the irrational behavior often observed in real markets (16). It is not often asked how this may happen, but one possibility is that the endocrine system acts as a relay between market events and the neural systems involved in economic decision making (18, 19). In particular, testosterone and cortisol have receptors throughout the brain regions identified in neuroeconomic research as contributing to irrational financial decisions, so these steroids, as they fluctuate with risk and return,may alter a trader’s ability to make optimal decisions.When traders in our study experienced acutely raised testosterone,for example, they made higher profits, perhaps because testosterone has been found, in both animal and human studies, to increase search persistence (20), appetite for risk (21), and fearlessness in the face of novelty (22, 23), qualities that would augment the performance of any trader who had a positive expected return. However, if testosterone continued to rise orbecame chronically elevated, it could begin to have the opposite effect on P&L and survival (24), because testosterone has alsobeen found to lead to impulsivity and sensation seeking (25), to harmful risk taking (21), and, among users of anabolic steroids,to euphoria and mania (26).