What Traders’ Testosterone Tells Us About Markets

An unusual study of traders’ spit may offer a taste of the future in how we understand what drives markets - and why they aren’t as stable and efficient as we might hope.

Bloomberg reports that several years ago, two neuroscientists undertook an experiment on the trading floor of a major investment bank in London. Over eight consecutive business days, at both 11 a.m. and 4 p.m., John Coates and Joe Herbert took samples of saliva from the mouths of 17 traders. With these samples, taken before and after the bulk of the day’s trading activity, they measured the rising and falling levels of a number of steroid hormones, including testosterone, adrenaline and cortisol.

The data revealed physiological changes not evident to the eye. To begin with, Coates and Herbert found that when traders did well and made money, they didn’t do it solely through cleverness and cerebral dexterity. Guts also played a role, although “testicles” would actually be more accurate. Traders performed better on days in which they registered higher morning levels of the hormone testosterone, which is mostly produced in the testes.

This isn’t actually surprising. After all, testosterone increases the level of hemoglobin in the blood, enabling it to carry more oxygen. Experiments in both animals and humans show that it boosts searching persistence, fearlessness and appetite for risk, qualities that obviously help any trader exploit real opportunities in the market. Athletes preparing for a competition produce more testosterone, which helps bring them to an optimal state of readiness for intense action.

The London experiments, though, also showed something unexpected.

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What Traders’ Testosterone Tells Us About Markets