Washington: Higher levels of testosterone, a male sex hormone, are likely to fuel financial brinkmanship, according to a new study that sheds light on biological origins of risk taking.
The study was jointly led by Anna Dreber of Harvard University and the Stockholm School of Economics and Coren Apicella, Harvard department of anthropology.
"These findings help us to understand the motivations for risk-taking behaviour, which is a major component of economic theory," said Dreber. "Risk preferences are one of the most important preferences in economics, and yet no one knows why they differ between men and women...."
Previous studies have shown that men, more likely than women, take risks which researchers theorised could be explained by the role of testosterone. Another recent study also demonstrated that stock market traders experienced greater profits on days their testosterone was above its median level.
However, this is the first study to directly examine the relationship between testosterone and financial risk-taking. "Although our findings do not address causality, we believe that testosterone may influence how individuals make risky financial decisions," informed Apicella.
Saliva samples were taken from 98 males, ages 18 to 23, mostly Harvard students, before participation, to ensure that testosterone levels were not elevated as a result of the game. They also assessed facial masculinity, associated with testosterone levels at puberty, according to a Harvard press release.
All of the participants were given $250, and were asked to choose an amount between $0 and $250 to invest. The participants kept the money that was not invested.
A coin's toss determined the investment's outcome, and if the participant lost the coin toss, the money allocated to the investment was lost. However, if the coin toss was won, the participant would receive two and a half times the amount of their investment.
At the end of the study, one person was selected by lottery to receive the cash amount of their investment, which created a monetary incentive for the participants.
Researchers found that a man whose testosterone levels were more than one standard deviation above the mean, invested 12 percent more than the average man into the risky investment.
A man with a facial masculinity score of one standard deviation higher than the mean invested six percent more than the average man.
The findings may help to explain the biological foundation of why some people are more inclined towards risk-taking than others.
Further research will examine changes in testosterone levels in response to financial wins and losses. "This will give us some insight into how changes in the market affect hormones, and in turn, affect decision-making," said Apicella.
Finally, the researchers are also exploring the role of genetics in explaining risk preferences. "Maybe we will be able to predict who becomes a trader," said Dreber.
The results are available online in Evolution and Human Behaviour.
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