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Study Examines Testosterone’s Role in Financial Risks

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By Michael Cohn
August 25, 2009

Testosterone could play an important role in the way different genders deal with financial risks and career choices, according to a new study.

Research from the Kellogg School of Management at Northwestern University, the University of Chicago Booth School of Business and the University of Chicago’s Department of Comparative Human Development suggests that the hormone may affect financial decision-making, risk-taking and risk aversion among men and women.

This isn’t the first time research has shown that testosterone enhances competitiveness and dominance, according to the study’s authors. The hormone has also been found to reduce fear and is associated with behaviors such as gambling and alcohol use. However, the authors claim this is the first study to look at the impact of testosterone on gender differences in financial risk-taking. The study found that those with moderately high levels of the hormone approached monetary decisions with less caution and flocked to jobs in finance. That immediately conjures up images of pumped-up Wall Street traders shouting their way over their trading desks and jostling each other on the floor of the New York Stock Exchange.

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Women were apparently more risk averse than men when it came time to make important financial decisions, and that could affect their career choices. The researchers measured the testosterone levels in saliva samples they took from 500 MBA students at the University of Chicago, and found that 36 percent of the female MBA students chose high-risk financial careers such as investment banking or trading, compared to 57 percent of male students.

The students were asked to participate in a laboratory experiment to measure the relationship between risk and hormonal levels. Over two days in October 2006, the participants were asked to play a computer game that evaluated their risk aversion attitudes. They answered a series of questions that asked them to choose between accepting a guaranteed monetary award or choosing a risky lottery with a higher potential payout.

Students had to choose repeatedly between the lottery and a fixed payment at increasing values. The more risk-prone participants chose the lottery more often, whereas more risk-averse individuals preferred the guaranteed payout. Overall, men exhibited significantly lower risk aversion than women in the study, and also had significantly higher levels of salivary testosterone than women.

The researchers found that higher levels of testosterone were associated with a greater appetite for risk in women, but not among men. However, in men and women with similar levels of testosterone, the gender difference in risk aversion disappeared. Additionally, the researchers reported that the link between risk aversion and testosterone predicted career choices after graduation: individuals who were high in testosterone and low in risk aversion chose riskier careers in finance.

No word on what the researchers did with all those testosterone-laden saliva samples in the end, though. Probably better not to ask. Yuck.

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