Endocrine and neural basis of financial decision-making and asset market instability

Financial market bubbles and crashes destabilise the global economy, yet a scientific explanation for their occurrence remains elusive.
Our research will attempt to provide such an explanation, one based on the neural and endocrine substrates of risk taking. The experiments we have designed will examine the ways in which financial decision-making is influenced by endogenous steroid hormones; the ways in which fluctuating levels of these steroids contribute to financial market instability; and the ways in which males and females differ in their endocrine reactions to economic risk and return.
We will conduct field work on trading floors in order to evaluate the following hypotheses: traders' testosterone levels rise during a bull market, increase risk-taking, and thereby amplify the market's upward momentum; in contrast, traders' cortisol levels rise during a bear market, increase risk-aversion, and thereby amplify the market's decline. We will compliment the field work with laboratory experiments using pharmacological manipulation of testosterone, cortisol, and dopamine signalling in order to evaluate the hypothesis that risk seeking behaviour will increase with testosterone and risk aversion with cortisol administration.