The Bull of Wall Street: Experimental Analysis of Testosterone and Asset Trading

Amos Nadler, Peiran Jiao, Cameron J. Johnson, Veronika Alexander, Paul J. Zak

Research output: Contribution to journalArticleAcademicpeer-review

Abstract

Growing evidence shows that biological factors affect individual financial decisions that could be reflected in financial markets. Testosterone, a chemical messenger especially influential in male physiology, has been shown to affect economic decision making and is taken as a performance enhancer among some financial professionals. This is the first experimental study to test how testosterone causally affects trading and prices. We exogenously elevated testosterone in male traders and tested testosterone's effect both on their trading behavior in experimental asset markets and on the size and duration of asset price bubbles. Using both aggregated and individual trading data, we find that testosterone administration generated larger and longer-lasting bubbles by causing high bids and the slow incorporation of the asset's fundamental value.

Original languageEnglish
Pages (from-to)4032-4051
Number of pages20
JournalManagement Science
Volume64
Issue number9
Early online date2017
DOIs
Publication statusPublished - Sep 2018

Keywords

  • asset trading
  • experimental markets
  • testosterone
  • neurofinance
  • bubbles
  • FINANCIAL RISK-TAKING
  • THAR SHE BLOWS
  • DECISION-MAKING
  • YOUNG MEN
  • GENDER-DIFFERENCES
  • STOCK-MARKET
  • EXOGENOUS TESTOSTERONE
  • LABORATORY EXPERIMENTS
  • COGNITIVE REFLECTION
  • BEHAVIORAL ECONOMICS

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