The notion that humans are Homo economicus, rational economic decision makers, has taken some serious hits ever since people bought more than 1.5 million Pet Rocks in the 1970s. Research in behavioral economics shows that we are typically more generous in economic games than logic would predict, that we will pay to spitefully punish freeloaders and that we tend to make rapid emotional decisions—and then struggle to rationalize them. A new study adds to this theme by showing how a class of stress hormones can distort decision-making in a setting resembling the stock market.
In a splashy, much-discussed paper published in 2008 in the Proceedings of the National Academy of Science, John Coates and Joe Herbert of Cambridge University examined the levels of various hormones in male floor traders at the London stock market over the course of eight days of work. They wanted to see if hormone patterns correlated at all with how the market was doing and/or with the trader’s own market performance. (Dr. Coates, it is worth adding, had spent his errant youth working as a trader atGoldman Sachs and Deutsche Bank, before being born again as a neuroscientist.)
One of their key findings concerned cortisol (aka hydrocortisone, part of a class of adrenal steroid hormones known as glucocorticoids). Stress spurs cortisol secretions. If you’re stressed like a normal mammal, running from a predator, cortisol helps to save your life. But chronic psychological stress—a human specialty—elevates long-term cortisol levels, which increases the risks of stress-related diseases. >> Read More