Decision-Making, Financial Risk Aversion and Behavioral Biases: The Role of Testosterone and Stress

57 Pages Posted: 14 Aug 2017 Last revised: 8 Apr 2019

See all articles by John R. Nofsinger

John R. Nofsinger

University of Alaska Anchorage

Fernando Patterson

North Carolina Central University (NCCU)

Corey A. Shank

Miami University

Date Written: November 23, 2017


We examine the relation between testosterone, cortisol, and financial decisions in a sample of naïve investors. We find that testosterone level is positively related to excess risk-taking, whereas cortisol level is negatively related to excess risk-taking (correlation coefficient [r]: 0.75 and -0.21, respectively). Additionally, we find support for the dual-hormone hypothesis in a financial context. Specifically, the testosterone-to-cortisol ratio is significantly related to loss aversion. Individuals with a higher ratio are 3.4 times more likely to sell losing stocks (standard error [SE]: 1.63). Furthermore, we find a positive feedback loop between financial success, testosterone, and cortisol. Specifically, financial success is significantly related to higher post-trial testosterone and cortisol by a factor of 0.53 (SE: 0.14). Finally, we find that in a competitive environment, testosterone level increases significantly, leading to greater risk-taking than in noncompetitive environment. Overall, this study underscores the importance of the endocrine system on financial decision-making. Broader implications of this study include, but are not limited to, investors looking to optimize financial performance, industry human resources, market regulators, and academia.

Keywords: Testosterone, Cortisol, Physiology, Stress, Risk Aversion, Disposition Effect

Suggested Citation

Nofsinger, John R. and Patterson, Fernando and Shank, Corey, Decision-Making, Financial Risk Aversion and Behavioral Biases: The Role of Testosterone and Stress (November 23, 2017). Available at SSRN: or

John R. Nofsinger (Contact Author)

University of Alaska Anchorage ( email )

3211 Providence Drive
Anchorage, AK 99508
United States


Fernando Patterson

North Carolina Central University (NCCU) ( email )

Durham, NC 27707
United States

Corey Shank

Miami University ( email )

Oxford, OH 45056
United States


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