Are Market Bubbles Caused by Traders’ Testosterone?
Are Market Bubbles Caused by Traders’ Testosterone?
March 1, 2017
Press Releases, Social Sciences & Humanities
Research conducted at Ben-Gurion University of the Negev (BGU) has determined that psychological momentum significantly affects performance among men but not among women, which may account for exaggerated risk-taking in financial and business endeavors among males.
Psychological momentum is defined as a state-of-mind where an individual or a team feels things are going unstoppably their way and is known to be caused, among other factors, by shifts in testosterone levels. The study, “Psychological Momentum and Gender,” is published in the March volume of the Journal of Economic Behavior & Organization.
According to Dr. Danny Cohen-Zada, a lecturer in the BGU Department of Economics, “The purpose of our study was twofold: to estimate the causal effect of psychological momentum on performance in real tournament settings, and to examine whether there are any gender differences in the corresponding response.”
The researchers analyzed two different samples of men’s and women’s judo competitions from 2009 to 2013. In the first, they looked at the bronze medal fights of each tournament. While competitors in this fight won the same number of total bouts, some had won their most recent bout while others did not. Those who reached the bronze medal fight following a win have a potential momentum advantage.
The authors examined this unique setting to determine whether the contestants with the momentum advantage had a higher probability to win the fight.
“Our results showed that based on a cross-section analysis of 106 men’s and 111 women’s fights from eight major annual judo events, having a psychological momentum advantage significantly increases the winning probability in men’s contests but not in women’s,” says Dr. Alex Krumer of the Swiss Institute for Empirical Economic Research, University of St. Gallen, Switzerland.
In the second part of the study, based on the head-to-head history of the pairs from the first sample and analyzing 225 men’s and 231 women’s fights, the researchers obtained similar results by analyzing how the performance of the same pair of judokas (judo experts) is affected by varied momentum statuses in different tournaments. As expected, the results of these specifications indicate that the psychological momentum effect exists among men, but not among women.
Dr. Danny Cohen-Zada
The researchers believe that their findings have implications for business. “We can connect our findings to the effect of psychological momentum in financial markets of which 90 percent are men,” says Dr. Ze’ev Shtudiner from the Department of Economics and Business Administration, Ariel University, Israel.
“Such an effect may lead male traders, driven by an increase in testosterone due to a successful investment, to take exaggerated risks, which, in turn, create price bubbles,” says Dr. Shtudiner.
“By increasing the number of women in financial markets, it may be possible to stabilize these markets since women have less dramatic shifts in testosterone levels, which can make them less prone to the momentum effect. This argument is consistent with our results that momentum effects are generated only among men, since it is only among them that testosterone levels increase after success.”
According to Dr. Krumer, “An increased frequency of positive feedback from managers after successful actions may turn into a positive psychological momentum and thus increase productivity. Similarly, managers should exert efforts to reduce the influence of unsuccessful actions of their workers to avoid productivity losses.”
Given these findings, Dr. Cohen-Zada believes additional research would be beneficial focusing on the role of psychological effects on performance in male-dominated positions, such as stockbrokers, high-profile managers, politicians, and military commanders.
Drs. Krumer and Shtudiner earned their doctoral degrees in economics from BGU.
ABOUT AMERICANS FOR BEN-GURION UNIVERSITY
By supporting a world-class academic institution that not only nurtures the Negev, but also shares its expertise locally and globally, Americans for Ben-Gurion University engages a community of Americans who are committed to improving the world. David Ben-Gurion envisioned that Israel’s future would be forged in the Negev. The cutting-edge research carried out at Ben-Gurion University drives that vision by sustaining a desert Silicon Valley, with the “Stanford of the Negev” at its center. The Americans for Ben-Gurion University movement supports a 21st century unifying vision for Israel by rallying around BGU’s remarkable work and role as an apolitical beacon of light in the Negev desert.
About Ben-Gurion University of the Negev
Ben-Gurion University of the Negev embraces the endless potential we have as individuals and as a commonality to adapt and to thrive in changing environments. Inspired by our location in the desert, we aim to discover, to create, and to develop solutions to dynamic challenges, to pose questions that have yet to be asked, and to push beyond the boundaries of the commonly accepted and possible.
We are proud to be a central force for inclusion, diversity and innovation in Israel, and we strive to extend the Negev’s potential and our entrepreneurial spirit throughout the world. For example, the multi-disciplinary School for Sustainability and Climate Change at BGU leverages over 50 years of expertise on living and thriving in the desert into scalable solutions for people everywhere.
BGU at a glance:
20,000 students | 800 senior faculty | 3 campuses | 6 faculties: humanities & social sciences, health sciences, engineering sciences, natural sciences, business & management, and desert research.
For all press inquiries, please contact:
James Fattal, J Cubed Communications
516.289.1496
Stories Like This
