From Molecule to Market

Steroid Hormones and Financial Risk-Taking


Emotions are commonly viewed as subcortical eruptions impairing the rational guidance of behaviour. However, certain authors have disputed this contrast, suggesting that rationality by itself would be overwhelmed and directionless were information not emotionally tagged for significance. Nonetheless, lapses of rationality continue to be blamed on emotional interference. This is especially true of irrational risk-reward choices made during financial market bubbles and crashes, choices considered by many as instances of irrational exuberance and pessimism overwhelming rational economic agency. However, there are grounds for believing that the emotions of euphoria and fear displayed in markets may be more accurately described as shifts in confidence and risk preferences, ones caused by elevated levels of steroid hormones…