Is your appetite for risk a fixed part of your character? Most senior leaders assume it is. Two studies published in the Proceedings of the National Academy of Sciences suggest otherwise: on a London trading floor, morning testosterone predicted a trader’s profit that day and cortisol rose with market volatility, and in a controlled experiment, raising cortisol for eight days made people measurably more risk-averse. The person who signs off a decision after a week of crisis may not be the same decision-maker who would sign it in calm.
What did hormone sampling on a London trading floor show?
Coates and Herbert sampled steroid hormones from male traders in the City of London under real working conditions. A trader’s morning testosterone level predicted his profitability for the rest of the day. His cortisol, the main stress hormone, rose with the variance of his own trading results and with the volatility of the market.
The authors read this cautiously: higher testosterone may contribute to economic return, while cortisol is driven up by risk. They added a sharper possibility: because both hormones are known to affect thinking and behaviour, if elevated levels persisted as volatility rose, they could shift risk preferences and even a trader’s capacity for rational choice. The study was male-only and observational; it shows association on one trading floor, not cause.
The room where the decision is signed: the same leader can arrive at a different decision in calm and in crisis. Image: Werner Pfennig / Pexels
Does sustained stress really change how much risk we take?
Six years later, Kandasamy and colleagues, building on that trading-floor work, tested the cortisol half of the idea directly. In a double-blind, placebo-controlled crossover study, they raised volunteers’ cortisol over eight days to the level previously seen in traders during volatile markets, then measured how they valued gambles and probabilities.
Participants became more risk-averse. Their weighting of probabilities also became more distorted, more so in men than in women. The authors conclude that risk preferences are dynamic rather than a stable trait: the stress response recalibrates risk-taking to circumstances and reduces it during prolonged uncertainty such as a financial crisis. They suggest such physiology-driven shifts may be an underappreciated cause of market instability. The limitation is clear: these were laboratory choices by volunteers, not portfolio decisions by fund managers.
What does this mean for a CEO, CFO or fund manager?
Read together, the two studies suggest a simple discipline; what follows is editorial interpretation, not a finding of either study. Decision rules for drawdowns, exits and position limits are best written in calm, when the body is not leaning in either direction, and then honoured when the market turns. After a run of wins, the risk is overconfidence; after weeks of volatility, it is freezing at exactly the moment opportunity is cheapest. Neither feels like chemistry from the inside. Both feel like judgement.
For Iranian executives managing capital between Tehran, Toronto and Dubai, prolonged uncertainty is not an occasional crisis but a working climate. That makes the second finding especially relevant: chronic stress may quietly turn a confident allocator into a cautious one without any conscious change of strategy.
A pivotal move under pressure: risk appetite is dynamic, not a fixed trait. Image: Vlada Karpovich / Pexels
A psychoanalytic lens: pleasure, reality and the body
In “Formulations on the Two Principles of Mental Functioning” (1911; Standard Edition, vol. 12), Freud distinguished the pleasure principle from the reality principle, the hard-won capacity to tolerate delay and take account of the external world. One interpretation of this research, offered as interpretation rather than finding, is that the body has its own vote in that contest: a winning streak may pull a leader toward the pleasure of more, while weeks of threat may make reality loom so large that every risk looks like loss.
The hopeful message is that risk appetite is not destiny. A leader who knows that stress changes the decision-maker can design the room, the rules and the recovery time so that the best version of their judgement is the one that signs.
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Coates JM, Herbert J. Endogenous steroids and financial risk taking on a London trading floor. Proc Natl Acad Sci U S A. 2008;105(16):6167-72. PMID: 18413617. doi:10.1073/pnas.0704025105
Kandasamy N, Hardy B, Page L, et al. Cortisol shifts financial risk preferences. Proc Natl Acad Sci U S A. 2014;111(9):3608-13. PMID: 24550472. doi:10.1073/pnas.1317908111
Freud S. Formulations on the Two Principles of Mental Functioning (1911). In: Strachey J, ed. Standard Edition, Vol. 12. London: Hogarth Press.
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