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Please use this identifier to cite or link to this item: http://hdl.handle.net/10481/31120

Title: Organizing Effects of Testosterone and Economic Behavior: Not Just Risk Taking
Authors: Brañas-Garza, Pablo
Rustichini, Aldo
Issue Date: 2011
Abstract: Recent literature emphasizes the role that testosterone, as well as markers indicating early exposure to T and its organizing effect on the brain (such as the ratio of second to fourth finger, 2D: 4D), have on performance in financial markets. These results may suggest that the main effect of T, either circulating or in fetal exposure, on economic behavior occurs through the increased willingness to take risks. However, these findings indicate that traders with a low digit ratio are not only more profitable, but more able to survive in the long run, thus the effect might consist of more than just lower risk aversion. In addition, recent literature suggests a positive correlation between abstract reasoning ability and higher willingness to take risks. To test the two hypotheses of testosterone on performance in financial activities (effect on risk attitude versus a complex effect involving risk attitude and reasoning ability), we gather data on the three variables in a sample of 188 ethnically homogeneous college students (Caucasians). We measure a 2D:4D digit ratio, abstract reasoning ability with the Raven Progressive Matrices task, and risk attitude with choice among lotteries. Low digit ratio in men is associated with higher risk taking and higher scores in abstract reasoning ability when a combined measure of risk aversion over different tasks is used. This explains both the higher performance and higher survival rate observed in traders, as well as the observed correlation between abstract reasoning ability and risk taking. We also analyze how much of the total effect of digit ratio on risk attitude is direct, and how much is mediated. Mediation analysis shows that a substantial part of the effect of T on attitude to risk is mediated by abstract reasoning ability.
Sponsorship: The authors acknowledge financial aid from MCI (SEJ2007-62081) and Junta Andalucia (PO7-SEJ-02547) for PBG, and NSF (SES-0924896) for AR.
Publisher: Public Library of Science (PLOS)
Keywords: Behavior
Cognition
Hands
Music cognition
Payment
Reasoning
Test statistics
Testosterone
URI: http://hdl.handle.net/10481/31120
ISSN: 1932-6203
Citation: Brañaz-Garza, P.; Rustichini, A. Organizing Effects of Testosterone and Economic Behavior: Not Just Risk Taking. Plos One, 6(12): e29842 (2011). [http://hdl.handle.net/10481/31120]
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