Original ArticlesTestosterone and financial risk preferences
Introduction
Testosterone, a steroid hormone mainly produced by the testes, not only influences male reproductive physiology and development but also plays an important role in modulating male behavior (Dixson, 1998, Nelson, 2005, Wingfield et al., 1990). The last 20 years has witnessed a surge in studies that attempt to identify relationships between circulating testosterone concentrations and social behaviors in males of many species (Adkins-Regan, 2005, Dabbs , 2000, Oliveira, 2004). For instance, testosterone has been associated with a number of behaviors in men including increased aggression (Archer, 2006), sensation seeking (see, e.g., Roberti, 2004 for a review), hostility (Hartgens & Kuipers, 2004), mate-seeking (Roney, Mahler, & Maestripieri, 2003), food acquisition (Worthman & Konner, 1987), and dominance (Mazur & Booth, 1998).2 Adaptive explanations for the role of testosterone have been offered for its influence on each of these behaviors, but broadly speaking testosterone modulates those behaviors, which may result in increased reproductive payoffs. These behaviors entail a certain amount of risk, and the consequences can often be costly.
In mammals, testosterone exerts organizational effects on the brain early in ontogeny during sexual differentiation (Phoenix, Goy, Gerall, & Young, 1959) and again during puberty affecting male behavior in the long term (Sisk, Schulz, & Zehr, 2003). These critical periods of exposure may affect male behavior by programming how individuals respond to the activating or nonpermanent effects of testosterone. Thus, consideration of exposure during these critical periods of development, as well as current circulating levels of testosterone, is essential to fully understand the role testosterone has in influencing behavior.
Two studies have examined the relationship between androgen exposure and financial risk. Dreber and Hoffman (2007) found that financial risk aversion is positively correlated with 2D:4D in a sample of Caucasian men and women in Sweden but not in a heterogenous sample of American men and women in Chicago. In another recent study examining a small group of male traders in London, researchers found that, on days when participants' testosterone level was above their median level for all 8 days sampled, they made greater profits than on days when their testosterone was below their median level (Coates & Herbert, 2008). The authors attribute this higher profitability as being partly mediated by testosterone's effect on risk, although they did not examine risk-taking directly. Our study is the first study to examine the relationship between testosterone and financial risk preferences in men.
Risk preferences are defined by the trade-off between the variance and the expected value for a given resource.3 To illustrate this, imagine that you can choose between two options, A and B. Option A entails receiving $50 with certainty, whereas option B entails a 50% chance of winning $100 and a 50% chance of winning $0. The expected outcome is the same for both options: $50. An individual is considered to be risk-neutral when displaying indifference between the two options. A risk-averse individual would prefer the certain option A and be willing to trade off some of the expected gain for a reduced risk. A risk-loving individual would prefer option B to option A. Thus, risk can be formalized by looking at the variance in the values of the possible outcomes an option implies.4 Large individual differences in risk preferences exist, as well as robust gender differences, with men being less risk averse than women (e.g., Byrnes et al., 1999, Croson & Gneezy, In Press, Eckel & Grossman, 2002). One possible mechanism for these differences may be the regulation of testosterone. Currently, little is known about the relationship between testosterone and risk preferences.
In this study, we examine circulating levels of testosterone in men and proxies for testosterone exposure in utero and during puberty. These are 2D:4D (the ratio between the length of the second finger and the fourth ring finger) and facial masculinity. 2D:4D is thought to negatively correlate with prenatal testosterone exposure (Manning, Scutt, Wilson, & Lewis-Jones, 1998; see Hönekopp, Bartholdt, Beier, & Liebert, 2007 for review), while many masculine facial features are thought to develop during puberty under the action of testosterone (see Johnston, Hagel, Franklin, Fink, & Grammer, 2001 for review).
Section snippets
Methods
Ninety-eight males, ages of 18–23 years, mostly Harvard University students, participated in the study. Based on self-report, 89 subjects were heterosexuals; 7 were homosexuals; and 67% of subjects were white, 10% East Asians, 4% blacks, 4% Hispanics, and 15% “mixed or other.” The experiment was approved by the Harvard University's Committee on the Use of Human Subjects in research. One outlier with testosterone levels more than three standard deviations above the mean was excluded from all
Results
Table 1 provides descriptive statistics for each measure. Consistent with past findings, there is large individual variation in risk preferences. Self-reported age and ethnicity were not related to the risk measure or the independent variables and were not included in any of the regressions models reported below. However, sexual orientation was found to be a highly significant predictor of risk (p<.001, R2=0.078) and was therefore used as a control in all regression analyses. Sexual orientation
Discussion
The findings of this study suggest an association between activational effects of testosterone and, possibly, its organizational effects during puberty and behaviors related to risk-taking in men. Men with higher levels of circulating testosterone and masculine faces are more likely to make risky financial decisions. There was no evidence in this study that 2D:4D is related to risk in men. However, the null result for 2D:4D may be due to the small and ethnically heterogeneous sample.
Monetary
Acknowledgments
We thank Johan Almenberg, David Cesarini, Dan Eisenberg, Peter Ellison, Marc Hauser, Magnus Johannesson, Matthew McIntyre, David G. Rand, Paul Schrimpf, Björn Wallace and two anonymous reviewers for helpful comments. We also thank Dave Perrett and Bernard Tiddeman for use of software to measure faces. Support from the Jan Wallander and Tom Hedelius Foundation is gratefully acknowledged (A.D.). The Program for Evolutionary Dynamics is sponsored by J. Epstein.
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These authors contributed equally.