Testosterone and finance: what is really controlling our purse strings?

Screen Shot 2014-08-01 at 11.23.56 PM Robyn Perry-Thomas, first-year, explores the scientific basis to the oft-cited relationship between a certain hormone and industry-wide spending habits.

The fall of the Lehman brothers is one of the pinnacle moments of modern financial history, lying at the center of the 2008 financial crash. The aftermath of the resultant recession, has led to the search for the causation of the meltdown. Understanding how banks collapsed when they were once deemed as ‘too big to fail’ is paramount for policy makers and industry leaders in the prevention of another recession.

Poor regulation, greed and bonus driven CEO’s are the most popular reasons cited for the causation of the meltdown. However, another perpetrator of the crash could be from somewhere much closer to home, testosterone, for instance. The financial industry, investment banking in particular, is well known for its male dominated, testosterone driven environment. After all, testosterone levels are highest in young males. Aggression and over-competitiveness are prime examples of negative features associated with this hormone.

This is not to diminish the essential role that testosterone plays in mankind. Testosterone enables sexual differentiation during fetal development and aids reproduction via the stimulation of libido in both sexes, initiation of spermatogenesis and it’s key role in the mating behaviour of a number of species. The latter of which can be demonstrated by a look at the challenge hypothesis in which J. C. Wingfield showed that males with higher levels of testosterone had greater reproductive success [1].

So, before we start a testosterone blame game, perhaps it would be a good idea to see where and how the arguably most socially potent of all hormones is formed.

Testosterone is a steroid hormone produced via both the Hypothalamic-Pituitary-Gonadal (HPG) axis and Hypothalamic-Pituitary-Adrenal (HPA) axis; with 95% of testosterone production in the adult male taking place via the within the testes. Adrenal production of testosterone occurs within the Zona reticularis of the adrenal gland and within the ranges of normal, physiological function, production of testosterone from this gland is relatively insignificant.

Gonadal testosterone production is kept under homeostatic control regulated by both long and short-range negative feedback loops. Leydig cells are stimulated to produce testosterone via two different gonadotropins, both of which are produced by the anterior pituitary gland- Lutinizing Hormone (LH) and Follicular Stimulating hormone (FSH). Gonadotrophic Releasing Hormone (GnRH) is released in pulses by cells of the paraventricular nucleus of the hypothalamus. In response to certain internal and external environmental stimuli, vesicles storing GnRH will release the peptide hormone into the hypothalamic-hypophyseal portal system, causing an increase in testosterone levels. 

The complex control of androgen secretion makes it difficult to imagine that levels of testosterone can altered by social and emotional events. However, a number of studies in which salivary testosterone levels have been measured, have shown that significant changes in levels of the hormone do occur. A longitudinal study carried out in the Philippines by Lee T Gettler, has shown that men undergo a significant decrease in testosterone levels on becoming a father where they exhibit more nurturing, caring, behaviour [2]. This decrease in testosterone concentration may be explained by considering the hormone from an evolutionary point of view. If one of the primary functions of testosterone is to assist reproduction, then when the need to find a mate is no longer present we can expect levels of the hormone to decrease. This has the effect of decreasing some of the effects of testosterone that may be less desirable when raising children, such as aggression.

For over two decades the housing market enjoyed the spoils of a bull market; property proved a lucrative investment for market traders, private investors and homeowners alike. Individuals and corporations leveraged heavily to invest in the booming property market assuming that property prices would continue to rise.Screen Shot 2014-08-01 at 11.24.12 PM

The employment of more sophisticated financial instruments such as Mortgaged Backed Securities (MBS) and Credit Default Swaps (CDS), enabled financial institutions and investors worldwide to invest in the seemingly lucrative U.S property market. The global influx of investment in MBS increased the demand for mortgages leading to a lowering of the regulation on the mortgage industry. In retrospect, this would be looked upon as the proverbial tipping point of the financial crash. A prime example of this was the introduction of Ninja Loans (no income, no assets), used to fuel the subprime market. Individuals were no longer required to have a high credit score or proof of employment for mortgage lenders to approve a subprime loan. The increase in property prices diminished the effects of a homeowner defaulting on their mortgage repayments, as their houses could be successfully be seized by the mortgage lender and sold on for profit. When the US property market peaked in 2006 it masked the true fragility of the financial system. Shortly after, when property prices fell, the bubble burst and Wall Street came crashing down.

In his 1994 book, Zuckerman defines sensation seeking as ‘a trait describing the tendency to seek novel, varied, complex and intense sensations and the willingness to take physical and emotional risks for the sake of such experience’.

High testosterone levels are positively correlated with sensation seeking behavior and playing the stock market shows a key characteristic of sensationary behavior –  the willingness to take risks [3]. This principle is supported by a recent study by Apicella et al. (2008), which studied financial risk preferences in relation to testosterone levels. The outcome showed that high levels of testosterone is a positive correlate to risky financial behavior [4].

There is no denying the fact that risk-taking frequently pays out. Coates’ 2007 study into the effects of steroids such as testosterone on a London trading floor have shown that a trader’s testosterone level is at its highest on successful days. This can lead to something known as the ‘Winner effect’ that describes the phenomena by which the outcome of a competition (and related changes to social status) affects levels of testosterone. This effect is explored by Archer’s 2004 paper, in which testosterone levels are shown to increase in response to a win. In the context of the financial market, this could mean that men who are successful in a trade (i.e. a win) will undergo an increase in levels of testosterone. As Coates’ explains, this acute increase in testosterone levels could lead increased chances of a future win resulting in a positive feedback, in which testosterone levels become consecutively higher [5,6].

However, increasing testosterone levels can compromise one’s ability to carry
out rational decision-making. Rather then thinking about long-term consequences of one’s actions, short-term, risky investments with ludicrous payouts become very at- tractive options. A paper by Zuckerman (1992), suggests a link between sensation-seeking behaviour and impulsivity, explaining how decisions such as the existence of subprime mortgages, which in retrospect we can appreciate should have been avoided like the bubonic plague, were undertaken in a flash with apparently little consideration at all [7].

The financial crash of 2008 is by no means the first time our modern financial system has suffered a major blow. How- ever we have an increasingly deep understanding of the interplay between endogenous hormones and the external environment.With only 2.9% of CEO positions belonging to women, it is clear that there is an abundance of testosterone in the stock market [8]. In light of recent events, perhaps it would be prudent to find ways in which we can reduce this hormone’s vice-like grip on our purse strings.


1. Wingfield, J. C., 1984, Androgens and Mating systems: Testosterone induced polygyny in normally monogamous birds (The Auk, vol. 101, No. 4 (Oco, 1984) pp. 665-671

2. Lee T. Gettler et. al, 2011; Longitudinal evidence that fatherhood decreases testosterone in human males PNAS (September 27th 2011, vol. 108, no. 39, 16199)

3. Marvin Zuckerman, 1994, Behavioral expressions and biosocial bases of sensation seeking

4. Coren L. Apicella et al, 2008; Testosterone and financial risk preferences (Evolution and Human Behavior 29 (2008) 384-390)

5. John Archer, 2004, Testosterone and human aggression: an evaluation of the challenge hypothesis (Neuroscience and Biobehavioral Reviews 30 (2006) 319-345)

6. J. M. Coates and J. Herbert; Endogenous steroids and financial risk taking on a London trading floor (PNAS, April 22 2008, vol. 104, no. 16, 616706172)

7. Paula Horvath and Marvin Zuckerman, 1992, Sensation Seeking, Risk Appraisal, and risky behavior (Person. Individ. Diff. Vol 14, No. 1. Pp. 4§ 52. 1993)

8. Catalyst inc. research pyramids; Women in US finance (December 14 2011)



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