How Trader Psychology Affects the Stock Market

Cambridge University researcher and former derivatives trader John Coates says that big profits boost testosterone levels, making traders more likely to take even bigger financial risks. 

What's the Latest Development?

Researchers from Cambridge University, England, have found that market traders experience a significant rise in testosterone levels when faced with the prospect of making above-average profits. A surge of testosterone in the body also changes how the brain evaluates risk, making traders more likely to take bigger gambles, resulting in an unstable marketplace with more frequent booms and busts. "For the trader this is a moment of transformation, what the French since the Middle Ages have called 'the hour between dog and wolf.'"

What's the Big Idea?

By better understanding human physiology, we will gain a more complete picture of what causes market crashes and be better prepared to prevent them in the future. "Understanding the effects of human biology on the markets should profoundly change how we see them, and their pathologies," said John Coates, a research fellow at Cambridge University and a former derivatives trader. "Risk management needs to dampen these biological waves, not amplify them." One solution Coates proposes is to encourage banks to hire more women, who produce less testosterone than men. 

Photo credit:


​There are two kinds of failure – but only one is honorable

Malcolm Gladwell teaches "Get over yourself and get to work" for Big Think Edge.

Big Think Edge
  • Learn to recognize failure and know the big difference between panicking and choking.
  • At Big Think Edge, Malcolm Gladwell teaches how to check your inner critic and get clear on what failure is.
  • Subscribe to Big Think Edge before we launch on March 30 to get 20% off monthly and annual memberships.
Keep reading Show less

Is this why time speeds up as we age?

We take fewer mental pictures per second.

(MPH Photos/giphy/yShutterstock/Big Think)
Mind & Brain
  • Recent memories run in our brains like sped-up old movies.
  • In childhood, we capture images in our memory much more quickly.
  • The complexities of grownup neural pathways are no match for the direct routes of young brains.
Keep reading Show less

Trauma in childhood leads to empathy in adulthood

It's not just a case of "what doesn't kill you makes you stronger."

Mind & Brain

  • A new study suggests children who endure trauma grow up to be adults with more empathy than others.
  • The effect is not universal, however. Only one kind of empathy was greatly effected.
  • The study may lead to further investigations into how people cope with trauma and lead to new ways to help victims bounce back.
Keep reading Show less

Why are so many objects in space shaped like discs?

It's one of the most consistent patterns in the unviverse. What causes it?

  • Spinning discs are everywhere – just look at our solar system, the rings of Saturn, and all the spiral galaxies in the universe.
  • Spinning discs are the result of two things: The force of gravity and a phenomenon in physics called the conservation of angular momentum.
  • Gravity brings matter together; the closer the matter gets, the more it accelerates – much like an ice skater who spins faster and faster the closer their arms get to their body. Then, this spinning cloud collapses due to up and down and diagonal collisions that cancel each other out until the only motion they have in common is the spin – and voila: A flat disc.