Testosterone Linked to Risky Investments

When Bear Stearns collapsed in March, The New York Times described the storied Wall Street investment bank as “a throwback to a bygone era,” a place with a “cigar-chomping, suspender-wearing culture where taking risks was rewarded.”

Some Harvard researchers may have found the link between the culture and the bust.

Men with higher testosterone levels are more likely to opt for high-risk investments, according to a study by a Harvard anthropologist and a visiting economist.

The researchers gave 98 male Harvard undergraduates $250 and asked them to invest the money as they saw fit. If participants made a successful investment—as determined by the flip of a coin—they were rewarded with two-and-a-half times the amount invested. If the “investment” failed, the participant lost his money.

The team hoped to further analyze the cross-cultural finding that women are less prone to risky behavior than men.

“Because you see these sex differences in risk-taking, we hypothesized that testosterone may play a role,” said Coren L. Apicella, a graduate student in anthropology who co-authored the study.

They measured participants’ testosterone levels by taking samples of their saliva and by evaluating the “maleness” of their faces—a larger jaw and other measures imply a greater influx of testosterone during puberty, according to Apicella.

“This financial risk taking in men is the modern equivalent of male-to-male combat,” said Apicella, who found in a previous study that men with lower voices tend to father more children than men with higher voices.

Apicella’s co-author, Anna S. J. Dreber, a visiting researcher from the Stockholm School of Economics, noted that “in an evolutionary sense, it makes sense that women are more risk averse” than men,

“If you think in terms of the sexual division of labor, in hunter gatherer populations, women go out and do the foraging for the goods that are going to be the most stable, whereas the men go out and go for the high risk strategy—they go hunting,” Apicella said. “They may not get something, but if they do, they win big.”

The authors said that the study’s findings call into question the rationality of economic activity.

The consequences of this are applicable to finance, according to co-author Benjamin C. Campbell, a professor at the University of Wisconsin-Milwaukee. Companies should consider hiring more women or older men, he said, because lower testosterone levels may lead to less-risky investments.

Apicella cautions, though, that the results are meant to show a correlation rather than to infer causality.

“It could be that having more testosterone makes you more risky, we just don’t know yet,” Apicella said. “That’s what we are looking at now.”