The risky decisions that men make sometimes lead to unexpected successes and sometimes to crushing failures. Scientists came to this conclusion by studying the behavior of traders in the financial markets. Since this is partly due to high testosterone levels, things usually turn out differently for women (including on the stock exchange).
It is known that testosterone increases the propensity to take risks, but the level of this and other hormones is not constant and can change depending on what is happening. For example, if a risky decision is successful, testosterone levels rise even more, but in case of failure, it decreases.
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Thus, consistent success further increases the willingness to take risks (and this is confirmed by studies conducted among stock traders), and this effect is more pronounced in men, since their testosterone levels are more strongly associated with the reaction to success and failure compared to women.
Daniel Ladley, Senior Lecturer in Economics at the University of Leicester (Great Britain) and Deputy Director of the Leicester Financial Institute, together with colleagues conducted a study in which scientists tried to model the impact of hormonal fluctuations in the body of traders on financial markets. As expected, the results showed that risks that lead to success increase the propensity to take further risks, while failure has the opposite effect, both of which are significantly stronger in men than in women.
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The researchers did not stop there and decided to evaluate how the number of female traders affects the stability of the markets. On the one hand, the increase in the number of female traders increased the overall volatility – prices fluctuated more often, while the magnitude of these fluctuations was smaller. At the same time, the number of sharp price fluctuations has decreased, which is important for maintaining financial stability, since a large number of weak fluctuations is much less dangerous than rare but sharp price drops.
The models also showed that, on average, female traders earn more than male traders, although the highest-earning traders are predominantly male. This is again explained by the influence of hormones – most men take risks and lose money on it, but a very small number manage to “break the bank”, constantly taking risks and winning.
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“Although the performance of male traders may be inferior to that of their female counterparts, financial firms are now structured in such a way that the best traders are mostly rewarded, and the majority are fired, even if many of them did generate income. It is important to note that experiments have shown that these “best” traders do so not because of the superiority of their skills and abilities, but purely due to luck – success after success further increases their willingness to take risks and increase investments. The best female traders are less affected by this effect and therefore less likely to make fabulous profits, but they are also much less likely to suffer losses. Thus, the dominance of men among traders can be explained by the influence of hormones. To achieve an equal gender ratio among participants in exchange trading, it will be necessary to change the entire structure of employee remuneration in financial companies – rewarding no longer for individual major successes, but for stability and consistency of results, ”says Daniel Ladley.
Подробнее см. D. Ladley et al. «The Role of Hormones in Financial Markets», Social Science Research Network, March 2016.