http://news.bbc.co.uk/2/hi/health/7342923.stm Hormone surges among City traders could be partly responsible for driving "boom and bust" economics, say researchers. ------------------------------- A Cambridge University team found testosterone levels were directly linked to the profit they made. The Proceedings of the National Academy of Sciences study also found levels of the stress hormone cortisol could affect the risks they took. A psychologist who works with investment bankers said it may help explain seemingly irrational behaviour. The Cambridge study measured testosterone levels in a small group of male City of London traders at both 11am and 4pm, and matched these to the levels of profit or loss recorded for that day. They found that daily testosterone levels were significantly higher on days when traders made more than their average profit. They ascribe this to the "winner effect", seen in sportsmen, in which success increases testosterone levels, which in turn increase feelings of confidence and ability to take risks, which then increase the chances of further profits. However, if repeated too much, they say, the rising testosterone levels could eventually compromise their ability to make rational decisions, as the traders take bigger and bigger risks during so-called "bubbles", where the market rises sharply. Prof Joe Herbert, one of the study's authors, said: "Our work suggests that these decisions may be biased by emotional and hormonal factors that have not so far been considered in any detail. "Hormones may be important for determining how well an individual trader performs in the stressful and competitive world of the market." 'Learned helplessness The researchers also looked at cortisol, which is produced in response to stress, and in the case of traders, extreme volatility in the markets. Dr John Coates, another of the study's authors, said that while ever-increasing testosterone levels might turn risk-taking into an "addiction", the reverse was true with the stress hormone cortisol, which, in excess, causes people to actively avoid risk, potentially worsening the effects of any downturn. "In the present credit crisis, traders may feel the noxious effects of chronic cortisol exposure, and end up in a psychological state known as 'learned helplessness'. "If this happens central banks may lower interest rates only to find that traders still refuse to buy risky assets. "At times like these, economics has to consider the physiology of investors, not just their rationality." 'In the Zone' Jeremy Holt, an occupational psychologist who works with investment banks to coach their traders on the psychology of risk-taking, agreed that both scenarios fitted well with his experiences. "Traders will often talk to me about being 'in the zone' - similar to a sportsman, meaning a feeling of 'unconscious competence', decisiveness and confidence. "But it's amazing the number of times that traders put in a really good run but then hand a lot of their profits back because they have become over-confident, and didn't just stop when they needed to. "They often come up with some strange, irrational reasons for doing this." He added: "On the other hand, in very stressful situations, some traders will just freeze, and not do anything."
They're looking at the caboose instead of the locomotive. Crises and hormones are preceded by excessive confidence as a result of excessive paper profits in a bull market.
<i>"Dr John Coates, another of the study's authors, said that while ever-increasing testosterone levels might turn risk-taking into an "addiction", the reverse was true with the stress hormone cortisol, which, in excess, causes people to actively avoid risk, potentially worsening the effects of any downturn. "In the present credit crisis, traders may feel the noxious effects of chronic cortisol exposure, and end up in a psychological state known as 'learned helplessness'."</i> Cortisol numbs a trader to losses. It does not create hesitancy and fear: it numbs the pain of loss while traders self-destruct. Inner protection mechanism for the bust cycle, whereas testosterone was a by-product of the boom cycle. The hormones do not precede trading results... those hormones are a by-product of the trade results.
High cortisol levels have been linked to gambling addictions. So I would have to say austinp is correct.
i think muscle tech used to have a product that suppressed cortisol. check some supplement stores not called GNC
<i>"Anyone know how to lower one's cortisol levels? Is there some kind of supplement or pill for that?"</i> http://www.thinkmuscle.com/articles/jalali/cortisol.htm One of many articles on the topic. I've seen countless ads for cortisol suppression thru the years, must be many different herbal products for that. Trick is figuring out which ones may be effective. It's a trader's enemy. How many times have we heard / read someone say, "I was just numb to the mounting loss. Sat there frozen without feeling a thing while the account turned red and bled to death." That's the cortisol working... opposite of adrenaline, it keeps us out of fight or flight mode and into resolute mode. Definitely not good for short-term traders who must cut losses (flight) when prudent asap