Photo by Kelly MacWilliams
Economists have discovered that, "just like animals in the wild," financial traders who take the greatest risks are the ones with the highest testosterone levels.
The most successful among them, however, have more than machismo. They also have the most experience and knowledge, so that, unlike their colleagues, they can tell which risks are smart and which are foolhardy.
The findings were published in the Proceedings of the National Academy of Sciences, in an article by University of Minnesota economics professor Aldo Rustichini, and Mark Gurnell and John Coates, both of Cambridge University, England. Coates, the lead investigator, is a Wall Street trading-floor manager-turned-neuroscientist.
Previous research had established that qualities like confidence, risk tolerance, vigilance, and quick reaction time are related to how much testosterone a fetus is exposed to in the womb. And for reasons not known, that level of exposure is recorded on the human body in the form of a ring finger that is longer than the index finger. This ratio, called 2D:4D, is commonly used to predict athletic success.
The research team wanted to know if, and to what extent, prenatal exposure to testosterone was a factor in the behavior of financial traders.
For their study they selected 49 males from a group of some 200 high-frequency traders from a trading floor in the City of London (only three of whom were female). They compared both the 2D:4D ratio and years of professional experience of each trader to his profit and loss record.
On average, traders with the most in utero testosterone exposure made 11 times more money than those with the least; while those with the most experience made 9.6 times more than the inexperienced ones, and were the most successful of all.
Researchers note that success on the adrenaline-charged trading floor requires skills that are not as important in other environments. Different types of financial trading reward other skills, such as the ability to relate well to clients, or to conduct a mathematical analysis of the market.
Beyond suggesting a predictor for a young man's success on Wall Street, the research shines a light on the perennial nature-versus-nurture question. It also offers a lens for understanding the often-baffling workings of the economy. Rustichini opines, for example, that "The bubble preceding the current crash may have been due to euphoria related to high levels of testosterone, or high sensitivity to it."
It appears the world of finance is more irrational than we might suppose, given its apparent sensitivity to what Rustichini calls "the hormone of irrational exuberance."