Have Studies Linking Trading Performance and Testosterone Encouraged Bad Behavior?

Readers may recall a 2008 study that found a link between testosterone levels and same-day trading performance. A typical summary:

John Coates and Joe Herbert from the University of Cambridge shadowed 17 male traders over 8 working days as they went about their business in a mid-sized City of London trading floor (the City is the capital’s financial district for the non-Brits among us). The bulk of their work took place between 11 am and 4pm, and at these times, Coates and Herbert took saliva samples to measure how their hormone levels shifted in a real-life situation. At the end of each one, the duo recorded how much profit and loss each trader had made…..

Coates and Herbert found that the traders were significantly more charged with testosterone on days when they beat their previous monthly average, than on those when they came under it. One trader, for example, enjoyed a 6-day winning streak that saw his profits soar to twice their historic average and his daily testosterone levels rise by 76%. And on days when the traders’ morning levels of testosterone were higher than normal, they made higher profits than days when they started off with low levels.

These patterns suggested that high testosterone levels lead to high profits.

Yves here. Aargh. Because I got plugged into the Canadian Sports Mafia (a loose association of Canadian doctors and coaches who consult to, train, and treat US pro teams and individual athletes), I got to know a Canadian doctor who is a world expert on dietary supplements. He does something pretty novel. He reads all the scientific research (I say that tongue in cheek because you’d be amazed at how many products are touted as having research behind them when they don’t). What is his first screen on the research? Whether the study is any good. Most are very badly designed, with a common failing that the sample size is too small.

That fits this study in spades. 17 guys over 8 days is too few observations. The Canadian MD would seldom consider anything that had fewer than 100 participants. Moreover, these men were ALL FROM THE SAME DEALING ROOM. You could have had intra-group dynamics playing a role and muddying the findings.

And later studies questioned the relationship, but they got less coverage:

Research by myself and my colleagues found that moderately elevated levels of this hormone increased the profits of high-frequency traders – although at higher levels it can cause overconfidence and risky behaviour, morphing traders into Masters of the Universe.

What we could not say, however, was whether testosterone was having its beneficial effects by increasing the trader’s skill or merely by increasing his appetite for risk.

In a study published on Wednesday in PLoS ONE we found that testosterone had little to do with trading skill. Traders with higher testosterone did indeed do better at this type of trading, because they took more risk. But there was no link between the hormone and their trading skills, as measured by the Sharpe ratio.

But traders were told that being a higher testosterone trader makes you a better trader. Let’s consider what being told one had a higher testosterone level produced in a different context. From the BBC:

Giving women more of the male hormone testosterone can turn them into fairer and more amiable game players…

So that old fashioned business about honor may have some distant foundation. But then get a load of this:

For the study, they asked more than 120 women to pair up and play an “ultimatum” bargaining game with real money at stake.

In the game, one of the pair is the “proposer” and is tasked with suggesting to the other player – the responder – how to split the money between them.

The responder can then only accept or reject the offer.

If they reject it, neither of the pair gets any of the cash.

The researchers gave the proposers either a dummy pill or one containing testosterone, but did not tell the women which pill they had been given.

Once they had played the game, the proposers were asked to say which pill they thought they had taken.
Those who received testosterone behaved more fairly, had fewer bargaining conflicts and were better at social interactions.

However, women who thought that they had received testosterone, whether or not they actually did, behaved more unfairly than those who thought that they had received placebo, again whether or not they actually did.

The researchers, led by Ernst Fehr of the University of Zurich, Switzerland, said the results suggested a case of “mind over matter” with the brain overriding body chemistry.

The study is by Nature and is firewalled. One could argue that if some women thought they received testosterone, there might have been a defect in the study implementation (it ought to be double blind, placebo controlled, but was it? Why would some women think they knew what they had received?)

But the other media coverage reinforces the conclusion that the stereotyping of testosterone-fueled behavior trumped its real effects:

They claim the results finally dismiss the myth – sometimes even used in court – that the sex hormone testosterone is the cause of much male aggression and anti-social behaviour.

However the popular belief that it makes you more ruthless and rebellious is so strong that if people believe they are taking the hormone they tend to fulfil their beliefs.

Now we can drive a truck through the reasoning here….a study on the effects of testosterone on women being applied to men? Ahem. But it certainly suggests that an separate study on men could be very revealing.

And it further suggests an interesting line of thought: if scientists demonstrate that testosterone-driven behavior is not aggressive, can we legitimately start to redefine what real macho means?

Personally, I never liked Master of the Universe types and we’ve had twenty plus years of celebration of that sort of behavior. I’d welcome anything that could undermine they cultural mythology that depicts it as attractive.

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  1. verveAbsolut

    Unless I missed something, I’m surprised this was not the first source of contention:

    “One trader, for example, enjoyed a 6-day winning streak that saw his profits soar to twice their historic average and his daily testosterone levels rise by 76%”

    “These patterns suggested that high testosterone levels lead to high profits.”

    Correlation does not equal causation, anyone? Did the testosterone cause the profits, or did the profits cause the testosterone?

    Agreed on the rest of the poor study setup. An n of 17? Non-randomized? This wasn’t a study; this was a poll.

  2. alex

    “These patterns suggested that high testosterone levels lead to high profits.”

    Or that high profits lead to high testosterone levels. I haven’t read the detailed studies, but that one summary suggests the most basic flaw: correlation doesn’t demonstrate cause causality. X correlates with Y doesn’t tell you whether X causes Y, Y causes X, or X and Y are both caused by a third factor Z.

    More to the point “testosterone” in the vernacular has come to be nothing more than a rough synonym for “macho”, but with a pseudo-scientific veneer. Better to say “macho” since that describes the directly observed behavior, as opposed to giving a very questionable “scientific” explanation for the cause of the behavior.

  3. Dave Raithel

    “120 women to pair up and play an “ultimatum” bargaining game with real money at stake…

    The researchers gave the proposers either a dummy pill or one containing testosterone, but did not tell the women which pill they had been given.”

    I’m no scientist, so, the first thing I asked was: How did they play BEFORE given any pills at all?

    Did I miss that part?

  4. Trainwreck

    Pfft, Coffee is for closers. You need more testosterone? Seriously, is sexualizing the problems in our society actually useful? I know females that look down on guys that are kindhearted and compassionate and at the same time those females will cut your neck if you decide to be compassionate. Lets get rid of the sexual stereotypes.

      1. Doc Holiday

        Hi Yves,

        I have been Ok, and thanks for asking! I have missed my routine here and thus need to place this nakedcapitalism-thing into a new thing that fits in with my other things. Guess I got busy.

        Is anyone else seeing the 1 Tip of a flat belly ad …. because the triangle is totally in the wrong place …… LOL!

        I shall return.

  5. Vinny G.

    I don’t know, but that study seems a bit unscientific to me…

    Could it be that their testosterone rose due to their winnings that day rather than the other way around (the winnings being somewhat caused by their higher testosterone levels)?

    But anyway, testosterone has been linked to aggression, and in high quantities can also lead to mood instability, impaired impulse control, poor judgment, etc. Who knows, maybe these are the qualities necessary to be a successful trader?…

    Oh, by the way, has anybody checked their level of cocaine too?…LOL


    1. Yves Smith Post author

      These all strike me as silly pop studies, but this one got picked up by Nature, go figure.

  6. bob

    I’m just picturing a braveheart type battle on the trading floor where more testosterone would make fat finger mistakes with electronic exchanges.

    Keyboards are precision instruments. Survival of the fittest would seem to benefit those that had less testosterone, or maybe less susceptibility to its effects.

    Agreed, these stories usually read like Human Resources recruiting tools. Good at playing video games? Come join us.

    Have you ever witnessed someone who is ‘very good’ at video games? I went to college with some. The best were almost catatonic, and disturbing in their complete lack of emotion in general.

    Admittedly small sample size.

    1. Michael

      “I’m just picturing a braveheart type battle on the trading floor where more testosterone would make fat finger mistakes with electronic exchanges.”

      But isn’t the study of the women at least, suggesting that testosterone actually makes you more thoughtful and better at social interaction? i.e. pretty much the opposite of the ‘popular myth’ of testosterone == agro meat heads. Even so, testosterone helps muscle control(?), so presumably fat fingers wouldn’t be unexpected in any event.

      “Have you ever witnessed someone who is ‘very good’ at video games? I went to college with some. The best were almost catatonic, and disturbing in their complete lack of emotion in general.”

      Maybe they’re just absorbed in the problem. They might not be great at parties but people with deep problem solving skills are needed to make the world work. That’s the beauty of civilisation, the ability, indeed the necessity, to specialise. We can’t all be social butterflies, and still have cars to drive.

      Yves said: “it ought to be double blind, placebo controlled, but was it? Why would some women think they knew what they had received?”

      Well they’re still given a pill and presumably they’re told what the pill choices are (ethical reasons etc). Wouldn’t you take a guess at what you thought you got?

      1. DownSouth

        Many years ago I read a great book called The Great Santini that gave a poignant portrait of a jet fighter pilot.

        Santini was your quintessential macho man. He was a great fighter pilot, but as a husband and a father, left much to be desired.

        And while Santini had what it took to perform superbly within the confines of a cockpit, I hardly think that would qualify him to occupy the Oval Office.

        So your comment—“That’s the beauty of civilisation, the ability, indeed the necessity, to specialize”—is right on.

  7. Dan Duncan

    What would the study have revealed if was performed over 8 days in Nov or Dec of 2008?

    But let’s put aside the OBVIOUS question concerning the overall market performance during the 8 days in question, and instead ponder….

    A world in which testosterone does, in fact, enhance one’s trading prowess:

    Vince McMahon would set up WWNYSE Bull vs Bear Cage matches on CNBC with the year culminating in “TraderMania LXXXIX”. The CNBC Money Honeys would be TraderDivas (no real difference here). [Cramer would need to tone his act down, though.]

    Barry Bonds, his head now blown up to Macy’s Thanksgiving Day Parade proportions, would segue into a wildly successful career at MS.

    Sales of Rogaine would SKYROCKET…as would Proactive’s Back Acne Cream.

    Barclays would suffer a devastating blow from a case of Fat Fingered ‘Roid Rage: “QQQ this Bitch!” Then, looking at both his trading screen and his zipper, “You better start rising Mother F%^$er!”

    The always environmentally sensitive Goldman Sachs would institute syringe recycling programs.


    Big Swinging Dicks would be replaced by TFPs–Tiny Flaccid Penises.

  8. Blindweb

    As everyone already pointed out, success led to higher testosterone levels. I thought this was common knowledge in educated society.

  9. DownSouth

    On a somewhat different but related subject, I’d like to point out that plasma testosterone-homosexuality correlational studies in adult males have also attracted considerable attention. These studies might shed some light on the subject of this post.

    The possibility of a correlation between plasma hormone levels and male sexual orientation was greeted with enthusiasm, widely tested, then dispassionately discarded. But a review of the plasma testosterone approach will direct the reader’s attention to the processes by which change occurs in psychobiological and psychoanalytic theories of behavior—an important subtext of this book.


    The inconsistent findings may have been due to variations in the design of the studies. The problems of design are considerable in research on hormone levels. For example, psychological stress may influence plasma testosterone levels, as was demonstrated in an elegant longitudinal study of young men at officer candidate school. In these young men, plasma testosterone levels were depressed during an early, stressful phase of training but returned to normal later, during a less stressful phase. This research raised questions about studies involving homosexual subjects, many of whom live in environments which include a great deal of irrational prejudice against homosexual individuals… Psychological stress may have an impact on the low plasma testosterone levels originally assumed to be a biological marker of homosexuality. Furthermore, plasma testosterone levels may be depressed by alcohol and other drugs. Some studies on hormone-behavior relations controlled for confounding variables such as these, but others did not. This qualification notwithstanding, enough data have been accumulated by now to indicate the emergence of a negative theme.

    It does not appear at present that hormone levels or hormone production in postpubescent males are associated etiologically with homosexuality. Meyer-Bahlburg, in a summary of 27 studies of blood testosterone levels in homosexual males, noted that most of the research found no differences between homosexual and heterosexual men. The investigations that were the most meticulously designed, using careful techniques for selecting subjects and taking measurements on multiple occasions, revealed that plasma testosterone levels were not depressed in homosexual men. One such study actually found homosexual subjects’ plasma testosterone levels to be elevated!

    Negative findings were also obtained with regard to correlation of homosexuality with increased plasma estrogens or decreased testosterone/estrogen ratios. Studies of gonadotrophin levels, other aspects of the functioning of the hypothalamic-pituitary-testicular axis, and other types of hormones have yielded similar results. Correlation between blood levels of hormones and sexual orientation in adult males does not seem to be a promising area for future investigation. Study of the influence of prenatal neuroendocrine influences on sexual behavior, however, yields more interesting results.
    –Richard C. Friedman, Male Homosexuality: A Contemporary Psychoanalytic Perspective

  10. Siggy

    Pop a pill, be a better trader. Takes my breath away. Why is this a line of inquiry? Is this something we need to know? Is this something that in the knowing our life is enriched?

    Stinks like a brain rotting in the sun. Why wasn’t this study coupled with a pop psychology quiz?

    Was there a government grant that underwrote this inquiry? Someone wasted a lot of money.

  11. David Roberts

    This study may be irrelevant in addition to being weak science, the best traders that I have known have all been women.

  12. Oracle

    David Roberts is correct. Women are better traders because they have the discipline to follow a trading plan. Macho trading leads to ruin in the long term. Also, most of these traders using OPP would fail miserably if trading their own money.

  13. DownSouth

    I have somewhat of a quibble with even engaging in this discussion, and that is that it bestows way more dignity on traders than what they deserve.

    One must remember that these guys are engaged in zero sums games. Their activities create nothing. If they win, then somebody else loses.

    Also, most traders don’t risk their own money. They use somebody else’s money. If their trading is successful, they get a bonus calculated as some share of their winnings. If it is unsuccessful, it doesn’t come out of their own pocket.

    Isn’t this talk about which trader wins and which one doesn’t tantamount to talking about which horse wins at the race track and which one doesn’t? Isn’t it just so much hype to pique people’s interest in horse racing?

    But the real trick is that, after these guys have siphoned off all the winnings when times are good, and then a bad streak hits and the casino goes belly up, they get the taxpayers to bail out the casino.

    As David Sloan Wilson said, this is like professional wrestling: great fun, but don’t mistake it for a real contest.

  14. LeeAnne

    Casual observer:

    Loud, mean, short fused information junkies = high risk, short-term traders.

    Dignified, respectful, thoughtful and educated = long term investors and leaders.

  15. Oracle

    @DownSouth: an argument could be made that traders create liquidity especially for hedging in the futures markets.

    1. DownSouth

      Rob Parenteau sort of made that case in a post the other day:

      But even then, with investment equal to profit, there is a timing problem, since profits only show up after the sales of produced goods and services. In a monetary production economy – that is, one not characterized by barter exchange of products for products, where production takes place only in the expectation of or search for money profits – the business sector has to gets its hands on cash to set production in motion (since sales revenue follows the act of and the costs of production with a lag), and they usually do this by borrowing from a bank, which creates money and debt in the process (loans create deposits, deposits are acceptable means of settlement, or money). So credit and money are deeply intertwined with real production and the accumulation of tangible plant and equipment, at least in the economy we inhabit…

      And I think what he says makes sense. So I’m not arguing that all activities of the financial sector don’t serve a productive function in society.

      But there are a couple of caveats.

      One is that when the financial sector grows too large it starts acting like some types of cancer or leukemia. If my memory serves me correctly, there are strains of those diseases where the multiplication of cells that are normally beneficial spins out of control.

      Second, of all the services the financial sector provides, it seems like some of these trading activities might be the most difficult to show social benefits.

  16. thump

    I am not a trader but… My small observation of short-term trading habits is that their gains often rely on bad, unprofitable events simply not happening. If the something bad happens, bets are doubled down, so the next even-worse thing becomes even less likely to happen, in an effort to recover losses. One would need to see a longer-term study to see if testosterone levels were correlated with gains or simply with volatility of returns.

  17. Hmmm. . . . .

    There are plenty of women in this world with a testosterone level that would disqualify them from international sports as females. I’m one of them. And yet I do not have a personality that tolerates risk well at all. I strongly suspect that something else is at work here rather than one’s hormonal profile.

    How delightful to see an intelligent treatment of what is generally screwy about these idiot studies! I keep threatening my poor, patient friends that I’m going to sign up to teach college-level statistics courses because this drives me psycho crazy! I believe I’ve heard this reported in the news as “Study shows high testosterone levels lead to trading profits.” Uh, not even close. My class would have to be called something along the lines of “Stat 101: Most of What Gets Reported as Significant is Crap.”

  18. Chris

    I think the mere fact that a study of this type was even conducted speaks volumes. Why don’t they dispense with this testosterone business and just measure penis sizes?

  19. Greg

    Um, Yves, what the hell do you think is keeping all those disgruntled – and now increasingly out of work – men from running amok?

    I’d say the Cult of Personality we’ve created over tMoU might be part of it. Plus they figure that, what the hell, I could end up one of those guys some day.

    At least every frathole at my college thought that.

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