What's a Cause of Stock Market Crashes? Too Much Testosterone, Science Says.

In a study, the hormone inflated the participants' perception of a stock's worth.
What's a Cause of Stock Market Crashes? Too Much Testosterone, Science Says.
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2 min read

The financial institutions that do work trading on the New York Stock Exchange are predominantly, perennially staffed by men.

And now, a new study from the University of Western Ontario, University of Oxford and Claremont Graduate University has found that testosterone, the hormone found more so in men than in women, can be linked to the decisions that lead to stock market destabilization and crashes.

To figure this out, the researchers constructed their own test case stock market. Before each of the 17 trading sessions, the “traders” -- 140 male participants -- were either given testosterone or a placebo in gel form. Each session had the participants selling, bidding and offering money in exchange for stock and competed to see who would make the most money.

Related: 5 Things You Need Before You Invest in the Stock Market

The researchers found that when the participants were given testosterone before they commenced trading, it increased the size of the stock market bubbles. The traders put forth higher bidding and selling prices, and their perception of the stock’s value was affected, even though they knew its true value.

In a summary of the study from UWO’s Ivey Business School, the researchers recommended that when trading, to account for this influence, instead of a frenzied decision-making practice, firms should institute “cool down periods” to better assess the real value of the stock on the table.

That's a good piece of advice for entrepreneurs too. Instead of making decisions right away, cool off for a bit and take in the situation.

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