Stressed bankers could be affecting financial crises by being negatively affected by hormones.
City traders under stress are likely to be more risk-averse, according to a study by Cambridge University, which tested the effect of stress hormone cortisol on people’s willingness to take risks.
Cortisol, which creates the “fight or flight” response, was given to study participants to mimic the levels seen in traders.
Initially, the hormone had no effect while people played a financial risk taking game, but over time participants became 44% more risk-averse.
Dr John Coates, former Wall Street derivatives trader and member of the Cambridge University research team, said: “Any trader knows that their body is taken on roller-coaster ride by the markets. What we haven’t known until this study was that these physiological changes – the sub-clinical levels of stress of which we are only dimly aware – are actually altering our ability to take risk.
“It is frightening to realise that no one in the financial world – not the traders, not the risk managers, not the central bankers – knows that these subterranean shifts in risk appetite are taking place.”