Economic Behavior

[Michael Scally MD]

Effect Of Estrogen And Testosterone On Economic Behavior [Women Only]

Humans display sizeable individual variation in economic behaviors. Heterogeneity is large both in the domain of personal decision-making and in the domain of social interaction. Some individuals willingly take risks that others pay to avoid, and in situations where some individuals are altruistic and trusting, others are selfish and distrustful.

Relatively little is known about the sources of such preference heterogeneity, but two recent findings suggest that biological factors are important. First, comparisons of the behavior of identical and fraternal twins indicate that genetics explains a sizeable part of the variation in preferences across a wide range of economic domains. Second, a controlled increase in the level of the mammalian hormone oxytocin causes more trusting behavior.

Several studies also report that behavior is correlated with the level of sex hormones. Research finds that subjects with a higher testosterone level are more likely to reject unfair offers in the ultimatum game and finds a correlation between testosterone levels and financial risk-taking behavior. Two studies report that risk-taking behavior varies over the menstrual cycle; women are more risk averse during the ovulatory phase—that is, when the estrogen level is high. Because hormone levels in general are under strong genetic influences, these relationships between hormone levels and behavior suggest one possible channel for the intergenerational transmission of behavior.

Because men and women have sharply different levels of sex hormones, it is natural to think that hormones are implied in the differences between male and female behavior. Experimental evidence shows that, on average, women tend to be more risk averse, less competitive, and more prosocial than men. Hormones affect the brain by binding to specific receptors, and previous work suggests that differences in the organization of brain areas in males and females depend on hormones. Hormones may affect cognition, mood, well-being, sexuality, and social behavior.

However, the existing evidence on the relationship between sex hormones and economic behavior is merely correlative. It does not admit causal inference. To investigate whether there is a causal link, researchers conducted a double-blind randomized trial, with subjects randomly allocated to treatments with estrogen, testosterone, or placebo. The subjects were healthy postmenopausal women in the 50–65 year age group, carefully screened to rule out any contraindications to treatment. After 4 weeks of treatment, the subjects participated in a series of economic experiments with real monetary payoffs at the Karolinska University Hospital in Stockholm.

To measure financial risk aversion, they elicited subjects' value of a 50/50 gamble to win Swedish Kronor (SEK) 400. This choice-based measure was complemented by two hypothetical questions used and validated —a hypothetical financial investment question (“risk investment”) and a survey question about the general willingness to take risks (“risk assessment”). They used a dictator game to measure subjects' altruism, an ultimatum game to measure their reciprocal fairness, and a trust game to measure their trust and trustworthiness.

In comparison with placebo, they hypothesized that testosterone decreases risk aversion, altruism, trust, and trustworthiness and increases reciprocal fairness, and that estrogen increases risk aversion, altruism, trust, and trustworthiness and decreases reciprocal fairness.

The induced changes in estrogen and testosterone levels have previously been associated with important clinical effects. Numerous studies support that estrogen therapy of this kind is effective for treatment of menopausal symptoms, such as flushing, sweating, and sleep disturbance. Furthermore, testosterone therapy resulting in similar serum levels as in this study has been shown to improve psychosexual function, e.g., arousal, desire, satisfaction, and well-being in postmenopausal women. Yet, their study offers no support for the hypothesis that sex hormones affect economic behavior.


Zethraeus N, Kocoska-Maras L, Ellingsen T, von Schoultz B, Hirschberg AL, Johannesson M. A randomized trial of the effect of estrogen and testosterone on economic behavior. Proceedings of the National Academy of Sciences 2009;106(16):6535-8. A randomized trial of the effect of estrogen and testosterone on economic behavior

Existing correlative evidence suggests that sex hormones may affect economic behavior such as risk taking and reciprocal fairness. To test this hypothesis we conducted a double-blind randomized study. Two-hundred healthy postmenopausal women aged 50-65 years were randomly allocated to 4 weeks of treatment with estrogen, testosterone, or placebo. At the end of the treatment period, the subjects participated in a series of economic experiments that measure altruism, reciprocal fairness, trust, trustworthiness, and risk attitudes. There was no significant effect of estrogen or testosterone on any of the studied behaviors.

 

[Michael Scally MD]

Which is IT???

Gender Differences In Financial Risk Aversion Are Affected By Testosterone

Women are, on average, more risk averse than men in financial decision-making. Gender differences in financial risk aversion, in turn, can be associated with differences in career choices: For example, in our academic institutions, ?36% of female MBA students choose a risky career in finance (e.g., investment banking or trading), whereas 57% of male students do so. Although social and cultural expectations for risk behavior and career choices in men and women differ, biological differences between the sexes could play an important role in these differences in behavior.

One important biological difference between men and women involves the hormone testosterone. Higher levels of testosterone in males can result in gender differences in behavior and cognition through the organizational or the activational effects of this hormone. The former refers to permanent modification of brain structure and function during prenatal and early postnatal life due to exposure to testosterone, whereas the latter refers to the transient effects of circulating testosterone on the brain during postnatal life, and especially after puberty.

In humans, testosterone has been shown to enhance the motivation for competition and dominance, reduce fear, and alter the balance between sensitivity to punishment and reward. Testosterone has also been associated with extremely risky behavior such as gambling and alcohol use. However, the evidence that testosterone can affect financial risk-taking or other aspects of economic decision-making is currently mixed.

In this study, researchers investigated whether interindividual variation in testosterone can account for both between- and within-gender variation in financial risk aversion and career choices. They investigated the possible activational effects of testosterone by analyzing the relationship between salivary concentrations of this hormone and an experimental measure of financial risk aversion.

The possible organizational effects of testosterone on risk aversion were investigated by analyzing variation in prenatal testosterone exposure. This was done in two ways: first, we used the ratio between the length of the 2nd (index) finger and the 4th (ring) finger (2D:4D ratio) as a marker of prenatal testosterone exposure. Fingers have receptors for sex steroid hormones and their length is affected by hormone exposure in utero: in particular, the 2D:4D ratio has been shown to be negatively correlated with prenatal testosterone exposure and to be lower in men than in women. Second, prenatal testosterone has been shown to affect a child's sociability and ability to empathize, which, in turn, can be reliably measured by the “Reading the Mind in the Eyes” test developed by Baron-Cohen. This test involves guessing the feeling expressed in 34 pairs of eyes. Lower prenatal testosterone exposure is associated with higher performance on this test, and women typically score higher than men. Hence, as another proxy for prenatal exposure to testosterone, they used the Baron-Cohen test.

Subject population was a large (n = 550) cohort of MBA students at the University of Chicago. Although these students may not be representative of human populations in general, they believe that they represent an optimal subject population for this study for several reasons. First, MBA students are familiar with financial risk by virtue of their training, thereby minimizing the chance of uninformed responses to our experimental tests. Second, many of them enter the world of finance, where they have opportunities to make important financial decisions. Thus, working with this subject population allows them to measure risk attitudes among professional financial decision makers. Third, their subject population was relatively homogeneous in age, cultural and educational background, and socioeconomic status, thereby minimizing the effects of many potential confounds on the variables of interest. Finally, they were able to assess the subjects' career choices after they graduated from their MBA program.

When taken together, the results of this study suggest that testosterone has both organizational and activational effects on financial risk aversion in men and women and that these effects influence important career choices. Higher prenatal exposure to testosterone and higher circulating levels of this hormone were associated with lower risk aversion. The organizational effects of testosterone on risk aversion appeared to be weaker than the activational effects, perhaps because prenatal hormone exposure was assessed with indirect measures.

In both cases, the relation between testosterone and risk aversion was stronger in women than in men. However, when individuals with relatively low concentrations of testosterone (90% of women and 31% of men) were compared, the gender difference in risk aversion disappeared and within-gender variation in this measure was accounted for by variation in testosterone. This suggests that the relationship between testosterone and risk aversion is stronger at lower than at higher concentrations.

Although in their subject population the relation between testosterone and risk aversion continued to be lower for men than for women even in the subsample of men with low testosterone concentrations, a stronger correlation between testosterone and risk aversion in men has been reported by another recent study. Differences between studies in the strength of the relation between men's testosterone and risk aversion may be due to differences in the characteristics of the subject populations (MBA students vs. college undergraduates). Although the use of MBA students as a subject population may limit the generalizability of their findings.


Sapienza P, Zingales L, Maestripieri D. Gender differences in financial risk aversion and career choices are affected by testosterone. Proceedings of the National Academy of Sciences 2009;106(36):15268-73. Gender differences in financial risk aversion and career choices are affected by testosterone

Women are generally more risk averse than men. We investigated whether between- and within-gender variation in financial risk aversion was accounted for by variation in salivary concentrations of testosterone and in markers of prenatal testosterone exposure in a sample of >500 MBA students. Higher levels of circulating testosterone were associated with lower risk aversion among women, but not among men. At comparably low concentrations of salivary testosterone, however, the gender difference in risk aversion disappeared, suggesting that testosterone has nonlinear effects on risk aversion regardless of gender. A similar relationship between risk aversion and testosterone was also found using markers of prenatal testosterone exposure. Finally, both testosterone levels and risk aversion predicted career choices after graduation: Individuals high in testosterone and low in risk aversion were more likely to choose risky careers in finance. These results suggest that testosterone has both organizational and activational effects on risk-sensitive financial decisions and long-term career choices.