Hormones and Competitive Behavior

• Název práce v češtině: Hormony a soutěživost
• Název v anglickém jazyce: Hormones and Competitive Behavior
• Klíčová slova: hormony, testosteron, kortisol, riskování, soutěživost, 2D:4D, dual-hormon hypotéza
• Klíčová slova anglicky: hormones, testosteron, cortisol, risk-taking, competitiveness, 2D:4D, dual-hormone hypothesis
• Akademický rok vypsání: 2016/2017
• Typ práce: diplomová práce
• Jazyk práce: angličtina
• Ústav: Institut ekonomických studií (23-IES)
• Vedoucí / školitel: doc. PhDr. Lubomír Cingl, Ph.D.
• Řešitel: skrytý - zadáno vedoucím/školitelem
• Datum přihlášení: 14.06.2017
• Datum zadání: 14.06.2017
• Datum a čas obhajoby: 20.06.2018 09:00
• Místo konání obhajoby: Opletalova - Opletalova 26, O314, Opletalova - místn. č. 314
• Datum odevzdání elektronické podoby: 10.05.2018
• Datum proběhlé obhajoby: 20.06.2018
• Oponenti: doc. PhDr. Michal Bauer, Ph.D.

Seznam odborné literatury

Borghans, L., Duckworth, A.L., Heckman, J.J. & ter Weel, B. (2008). The Economics and Psychology of Personality Traits. Journal of Human Resources, 43, pp. 972–1059.

Bosch-Domènech, A., Brañas-Garza, P., & Espín, A.M. (2013). Fetal Testosterone (2D: 4D) as Predictor of Cognitive Reflection. ESI Working Paper 13-18. Retrieved from http://ideas.repec.org/p/bge/wpaper/698.html

Buser, T., Peter, N., & Wolter, S. (2017). Gender , Willingness to Compete and Career Choices along the Whole Ability Distribution Gender. IZA Discussion Papers, (10976).

Buser, T., Niederle, M., & Oosterbeek, H. (2014). Gender, competition and career choices. The Quarterly Journal of Economics, 129(3), 1409–1447. http://doi.org/10.1093/qje/qju009.Advance

Charness, G. & Gneezy, U. (2011). Strong Evidence for Gender Differences in Risk Taking. Journal of Economic Behavior and Organization, 83(1), pp. 50–58. http://dx.doi.org/10.1016/j.jebo.2011.06.007

Costa, J. P. T., & McCrae, R. R. (1992). Normal Personality Assessment in Clinical Practice: The NEO Personality Inventory. Psychological Assessment, 4(1), 5–13. Retrieved from http://www.sciencedirect.com/science/article/B6WYX-46VD04F-2/2/430de88263303f8e481e3dac5a7a52b7

Coates, J. M., & Herbert, J. (2008). Endogenous steroids and financial risk taking on a London trading floor. Proceedings of the National Academy of Sciences of the United States of America, 105(16), 6167–72. http://doi.org/10.1073/pnas.0704025105
Coates, J. M., Gurnell, M., & Rustichini, A. (2009). Second-to-fourth digit ratio predicts success among high-frequency financial traders. Proceedings of the National Academy of Sciences, 106(2), 623–628.

Coates, J. M., Gurnell, M., & Sarnyai, Z. (2010). From molecule to market: steroid hormones and financial risk-taking. Philosophical Transactions of the Royal Society of London. Series B, Biological Sciences, 365, 331–343. http://doi.org/10.1098/rstb.2009.0193

Cueva, C., Roberts, R. E., Spencer, T., Rani, N., Tempest, M., Tobler, P. N., Herbert, J., & Rustichini, A. (2015). Cortisol and testosterone increase financial risk taking and may destabilize markets. Scientic Reports. http://doi.org/10.1038/srep11206

Dohmen, B. T., Falk, A., Hu man, D., & Sunde, U. (2010). Are Risk Aversion and Impatience Related to Cognitive Ability? American Economic Review, 100 (June), 1238 -1260.

Edwards, D.A., Wetzel, K., Wyner, D.R., (2006). Intercollegiate soccer: saliva cortisol and testosterone are elevated during competition, and testosterone is related to status and social connectedness with teammates. Physiol. Behav. 87, 135–143. https://doi.org/10.1016/j.physbeh.2005.09.007

Eisenegger, C., Kumsta, R., Naef, M., Gromoll, J., & Heinrichs, M. (2016). Testosterone and androgen receptor gene polymorphism are associated with confidence and competitiveness in men. Hormones and Behavior. http://doi.org/10.1016/j.yhbeh.2016.09.011

Geniole, S., Bird, B., Ruddick, E., & Carré, J. M. (2016). Effects of competition outcome on testosterone concentrations in humans: An updated meta-analysis. Hormones and Behavior. http://doi.org/10.1016/j.yhbeh.2016.10.002

Gneezy, U., Saccardo, S. & Pietrasz, A. (2017). On the Size of the Gender Difference in Competitiveness. Management Science. https://doi.org/10.1287/mnsc.2016.2673

Goette, L., Bendahan, S., Thoresen, J., Hollis, F., & Sandi, C. (2015). Stress pulls us apart : Trait anxiety modulates self-confidence under stress. Psychoneuroendocrinology, 54, 115–123. http://doi.org/10.1016/j.psyneuen.2015.01.019

Kandasamy, N., Hardy, B., Page, L., Schaffner, M., Graggaber, J., Powlson, A. S., … Coates, J. M. (2014). Cortisol shifts financial risk preferences. Proceedings of the National Academy of Sciences of the United States of America, 111(9), 3608–13. http://doi.org/10.1073/pnas.1317908111

Manning, J. T. & Taylor, R. P. (2001). Second to fourth digit ratio and male ability in sport: implications for sexual selection in humans. Evolution and Human Behavior, Volume 22, Issue 1, Pages 61-69. https://doi.org/10.1016/S1090-5138(00)00063-5

Mehta, P., Welker, K. M., Zilioli, S., & Carré, J. M. (2015). Testosterone and cortisol jointly modulate risk-taking. Psychoneuroendocrinology. http://doi.org/10.1016/j.psyneuen.2015.02.023

Mehta, P. H., Josephs, J.A. (2010). Testosterone and cortisol jointly regulate dominance: Evidence for a dual-hormone hypothesis. Hormones and Behavior 58 (2010) 898–906. 10.1016/j.yhbeh.2010.08.020

Nadler, A., Jiao, P., Johnson, C. J., Alexander, V., Zak, P. J. (2017). The Bull of Wall Street: Experimental Analysis of Testosterone and Asset Trading. Management Science, https://doi.org/10.1287/mnsc.2017.2836

Niederle, M., & Vesterlund, L. (2007). Do Women Shy Away From Competition? Do Men Compete Too Much? The Quarterly Journal of Economics. 122 (3): 1067-1101.https://doi.org/10.1162/qjec.122.3.1067

Niederle, M., & Vesterlund, L. (2011). Gender and competition. Annual Review of Economics, 3(1), 601–630.

Schipper, B. C. (2012). Sex hormones and competitive bidding. Management Science, 61, 249 – 266 http://doi.org/10.1287/mnsc.2014.1959

Spielberger, C. D., Gorsuch, R. L., Lushene, R., Vagg, P. R. & Jacobs, G. A. (1983). Manual for the State-Trait Anxiety Inventory. Palo Alto, CA: Consulting Psychologists Press.

Weber, B., Falk, A., Wibral, M., Dohmen, T., & Klingmu, D. (2012). Testosterone Administration Reduces Lying in Men. PloS One, 7(10), e46774. http://doi.org/10.1371/Citation

Zilioli, S., & Watson, N. V. (2014). Testosterone across successive competitions: Evidence for a “winner effect” in humans? Psychoneuroendocrinology, 47, 1–9. http://doi.org/10.1016/j.psyneuen.2014.05.001

Předběžná náplň práce

Motivation:
It is widely known that financial markets can become dangerously unstable, yet it is still unclear why. Numerous reasons have been proposed to explain it; these include debt accumulation, incorrect beliefs about the earnings process, limits to arbitrage, asset incompleteness, herding or momentum trading. Another possible explanation can be the hormones contained in our bodies, specifically basal testosterone and cortisol that may critically influence traders’ financial decision making, particularly when participating in an environment as stressful and competitive as a modern financial market (Coates & Herbert, 2008). In this thesis we will investigate in particular the correlation of the hormones cortisol and testosterone, including their interaction, with the economically important individual traits of risk-taking and the willingness to compete. If there were enough evidence for a direct link between the physiological hormones and behavioral traits, it would be basically enough to take someone´s sample of saliva and indirectly infer how the person may behave, for example, in relation to risk. More generally, we aim to contribute to the literature on the biological underpinnings of important economic behaviors.

Willingness to compete is an important trait that has been shown to guide real world behavior, such as choosing career (Buser et al., 2014, 2017) It is generally established that men are, on average, more competitive than women and this fact can help to explain gender differences in economic outcomes (e.g. Niederle & Vesterlund, 2007, 2011). If women are less likely to compete, this not only reduces the number of women who enter tournaments, but also those who win tournaments, which relates to situations like university admissions, job interviews, asking for promotion and working in high-stakes environment. Risk traditionally plays an important role in almost every economic decision-making (e.g. Dohmen et al., 2011). For example, the analysis of portfolio models is based on strategies to differentiate risk according to investor attitude. In macroeconomics, we can consider unemployment, exchange and interest rates, political stability, imports and exports as examples of the unstable economic variables that influence the overall economy. Understanding individual risk attitudes is closely linked to the goal of understanding and predicting economic behavior. Apart from that, large number of research studies in experimental economics support a consensus that women are more risk averse than men (e.g. Charness & Gneezy 2011). The role of hormones in the determination of both risk-taking as well as in the willingness to compete, potentially explaining the observed gender gaps, has been however relatively under-explored.

Studies such as Eisenegger et al. (2016) or Geniole et al. (2016) have shown that basal testosterone levels correlate positively with psychometric measures such as the self-reported ability to win in competition. It is generally concluded that an increase in the level of this hormone encourages, while a decrease in level of this hormone discourages the decision to compete further. On the other hand, some competition designs have revealed no relationship between basal testosterone and an individual´s decision to compete (e.g. Edwards et al., 2006). Support for the testosterone´s influence on human behavior generally stems from real-world sports competitions and rigged laboratory competitions.

Testosterone plays significant roles in biological development, is a central biological driver of gender differences, and has recently been shown to influence various economic decisions making (Nadler et al., 2017). It is usually taken as a performance enhancer among some financial professionals. Testosterone also plays an important role in social behavior. A Weber´s et al. (2012) interpretation of the existing evidence on the role of testosterone in social behavior is that the hormone enhances dominance behavior, i.e., behavior intended to gain high social status, which in humans can be aggressive or prosocial depending on the context.

Cortisol is a hormone that brings glucose and thus energy to the bloodstream and is mostly known to be released during the physiological response to physical or psychological stress, but also during a physical exercise and high arousal. Moreover, cortisol has been shown to affect risk preferences and to correlate with instability in financial markets (e.g., Cueva et al., 2015, Coates & Herbert, 2008, Kandasamy et al., 2014).

Apart from that, we are interested in the effect of their interaction based on the so-called dual-hormone hypothesis with respect to risk-preferences and competitiveness. The dual-hormone hypothesis posits that basal cortisol and testosterone have a joint effect on dominance and risk-taking, i.e. there is a positive association between testosterone and attitudes to risk, but only when cortisol level in an individual is low (e.g. Mehta & Josephs, 2010, Mehta et al., 2015).

Another point of our interest is how the effects are mediated by the 2D:4D ratio (the ratio between the length of the 2nd (index) finger and the 4th (ring) finger of a right hand) and the trait anxiety. The 2D:4D ratio is considered to reflect the exposure to testosterone in utero thus before common economic, social, and cultural factors could shape competitive behavior of the individual directly. It is supposed to have an influence on how testosterone works in adulthood (Manning & Taylor, 2001) and some studies show its relationship with economic behavior (e.g. Coates et al, 2009). The second investigated modulating factor is the trait anxiety, a commonly used measure introduced by Spielberger et al. (1983). Anxiety can be defined as a feeling of unease, worry, tension, and stress. It can be used in clinical settings to diagnose anxiety and to distinguish it from depressive syndromes. It is useful to explain economic decisions with personality traits as individual differences in personality shape the constraints of individuals, and hence their choices (Borghans et al., 2008). Trait anxiety has been shown to play role in modulating the effects on economic behavior, e.g. the impact of stress on competitive confidence (Goette et al., 2015).


Methodology:
We run a controlled lab experiment with a student subject pool to investigate our research questions. We analyze the data using standard econometrics measures in order to test our hypotheses. We primarily investigate the effect of basal testosterone on competitiveness and risk-taking with respect to basal cortisol. Above that, we also focus on the mediating role of 2D:4D ratio, and the trait anxiety. Furthermore, we analyze how testosterone affects the difference between women and men.

Design of the experiment
Before the subjects come for the experiment, they fill in an online questionnaire with a set for the measurement of the trait anxiety. At the beginning of the experiment, subjects are asked to answer on a set of questions of their personality scales called the Big Five personality traits (Costa & McCrae, 1992). Next, we use the same method to measure competitiveness as in Gneezy et al. (2016) based on Niederle & Vesterlund (2007). We conduct an experiment in which participants solve a real math tasks and are rewarded in the first two-minute round using a piece-rate scheme while in the second round using a tournament scheme. Then, in the competitive task, subjects chose ex-ante how they want to be compensated for their performance in the counting portion of this upcoming task. They do so by splitting 100 points between the tournament and the piece-rate compensation schemes. For each point invested in the piece-rate scheme, they earn 0.25 CZK per correct answer. For each point invested into the tournament compensation scheme, they earn 0.5 CZK per correct answer, but only if they have more correct answers in this task than another randomly selected participant in previous task, and receive nothing per each point invested in the tournament scheme if they answer fewer questions. In case of a tie, each point invested in the tournament account is rewarded according to the piece-rate scheme.

After this, we also conduct another task to measure risk preferences using a setting based on Dohmen et al. (2010). In this task, subjects are asked to repeatedly choose between a lottery, which is always kept the same at 240 CZK versus 0 CZK with 50% probability each, and a safe payment, which is gradually increasing from 0 CZK to 240 CZK in the steps of 20 CZK.

The 2D:4D ratio is the ratio between the length of the 2nd finger and the 4th finger of the subjects’ right hand. The hands are scanned on the end of the experiment and then the ratio is calculated.


Expected Contribution:
The main aim of the thesis is to contribute to the growing body of studies focused on the role of hormones in the economic behavior, particularly in competitive behavior and risk-taking. We want to test on our subject pool the dual hormone hypothesis that higher level of basal testosterone implies more competitiveness and risk-taking, but only in subjects with low cortisol. We also analyze how 2D:4D ratio and trait anxiety influence the economic behaviors that has been, so far, mainly done in a sport´s context.

Předběžná náplň práce v anglickém jazyce

Motivation:
It is widely known that financial markets can become dangerously unstable, yet it is still unclear why. Numerous reasons have been proposed to explain it; these include debt accumulation, incorrect beliefs about the earnings process, limits to arbitrage, asset incompleteness, herding or momentum trading. Another possible explanation can be the hormones contained in our bodies, specifically basal testosterone and cortisol that may critically influence traders’ financial decision making, particularly when participating in an environment as stressful and competitive as a modern financial market (Coates & Herbert, 2008). In this thesis we will investigate in particular the correlation of the hormones cortisol and testosterone, including their interaction, with the economically important individual traits of risk-taking and the willingness to compete. If there were enough evidence for a direct link between the physiological hormones and behavioral traits, it would be basically enough to take someone´s sample of saliva and indirectly infer how the person may behave, for example, in relation to risk. More generally, we aim to contribute to the literature on the biological underpinnings of important economic behaviors.

Willingness to compete is an important trait that has been shown to guide real world behavior, such as choosing career (Buser et al., 2014, 2017) It is generally established that men are, on average, more competitive than women and this fact can help to explain gender differences in economic outcomes (e.g. Niederle & Vesterlund, 2007, 2011). If women are less likely to compete, this not only reduces the number of women who enter tournaments, but also those who win tournaments, which relates to situations like university admissions, job interviews, asking for promotion and working in high-stakes environment. Risk traditionally plays an important role in almost every economic decision-making (e.g. Dohmen et al., 2011). For example, the analysis of portfolio models is based on strategies to differentiate risk according to investor attitude. In macroeconomics, we can consider unemployment, exchange and interest rates, political stability, imports and exports as examples of the unstable economic variables that influence the overall economy. Understanding individual risk attitudes is closely linked to the goal of understanding and predicting economic behavior. Apart from that, large number of research studies in experimental economics support a consensus that women are more risk averse than men (e.g. Charness & Gneezy 2011). The role of hormones in the determination of both risk-taking as well as in the willingness to compete, potentially explaining the observed gender gaps, has been however relatively under-explored.

Studies such as Eisenegger et al. (2016) or Geniole et al. (2016) have shown that basal testosterone levels correlate positively with psychometric measures such as the self-reported ability to win in competition. It is generally concluded that an increase in the level of this hormone encourages, while a decrease in level of this hormone discourages the decision to compete further. On the other hand, some competition designs have revealed no relationship between basal testosterone and an individual´s decision to compete (e.g. Edwards et al., 2006). Support for the testosterone´s influence on human behavior generally stems from real-world sports competitions and rigged laboratory competitions.

Testosterone plays significant roles in biological development, is a central biological driver of gender differences, and has recently been shown to influence various economic decisions making (Nadler et al., 2017). It is usually taken as a performance enhancer among some financial professionals. Testosterone also plays an important role in social behavior. A Weber´s et al. (2012) interpretation of the existing evidence on the role of testosterone in social behavior is that the hormone enhances dominance behavior, i.e., behavior intended to gain high social status, which in humans can be aggressive or prosocial depending on the context.

Cortisol is a hormone that brings glucose and thus energy to the bloodstream and is mostly known to be released during the physiological response to physical or psychological stress, but also during a physical exercise and high arousal. Moreover, cortisol has been shown to affect risk preferences and to correlate with instability in financial markets (e.g., Cueva et al., 2015, Coates & Herbert, 2008, Kandasamy et al., 2014).

Apart from that, we are interested in the effect of their interaction based on the so-called dual-hormone hypothesis with respect to risk-preferences and competitiveness. The dual-hormone hypothesis posits that basal cortisol and testosterone have a joint effect on dominance and risk-taking, i.e. there is a positive association between testosterone and attitudes to risk, but only when cortisol level in an individual is low (e.g. Mehta & Josephs, 2010, Mehta et al., 2015).

Another point of our interest is how the effects are mediated by the 2D:4D ratio (the ratio between the length of the 2nd (index) finger and the 4th (ring) finger of a right hand) and the trait anxiety. The 2D:4D ratio is considered to reflect the exposure to testosterone in utero thus before common economic, social, and cultural factors could shape competitive behavior of the individual directly. It is supposed to have an influence on how testosterone works in adulthood (Manning & Taylor, 2001) and some studies show its relationship with economic behavior (e.g. Coates et al, 2009). The second investigated modulating factor is the trait anxiety, a commonly used measure introduced by Spielberger et al. (1983). Anxiety can be defined as a feeling of unease, worry, tension, and stress. It can be used in clinical settings to diagnose anxiety and to distinguish it from depressive syndromes. It is useful to explain economic decisions with personality traits as individual differences in personality shape the constraints of individuals, and hence their choices (Borghans et al., 2008). Trait anxiety has been shown to play role in modulating the effects on economic behavior, e.g. the impact of stress on competitive confidence (Goette et al., 2015).


Methodology:
We run a controlled lab experiment with a student subject pool to investigate our research questions. We analyze the data using standard econometrics measures in order to test our hypotheses. We primarily investigate the effect of basal testosterone on competitiveness and risk-taking with respect to basal cortisol. Above that, we also focus on the mediating role of 2D:4D ratio, and the trait anxiety. Furthermore, we analyze how testosterone affects the difference between women and men.

Design of the experiment
Before the subjects come for the experiment, they fill in an online questionnaire with a set for the measurement of the trait anxiety. At the beginning of the experiment, subjects are asked to answer on a set of questions of their personality scales called the Big Five personality traits (Costa & McCrae, 1992). Next, we use the same method to measure competitiveness as in Gneezy et al. (2016) based on Niederle & Vesterlund (2007). We conduct an experiment in which participants solve a real math tasks and are rewarded in the first two-minute round using a piece-rate scheme while in the second round using a tournament scheme. Then, in the competitive task, subjects chose ex-ante how they want to be compensated for their performance in the counting portion of this upcoming task. They do so by splitting 100 points between the tournament and the piece-rate compensation schemes. For each point invested in the piece-rate scheme, they earn 0.25 CZK per correct answer. For each point invested into the tournament compensation scheme, they earn 0.5 CZK per correct answer, but only if they have more correct answers in this task than another randomly selected participant in previous task, and receive nothing per each point invested in the tournament scheme if they answer fewer questions. In case of a tie, each point invested in the tournament account is rewarded according to the piece-rate scheme.

After this, we also conduct another task to measure risk preferences using a setting based on Dohmen et al. (2010). In this task, subjects are asked to repeatedly choose between a lottery, which is always kept the same at 240 CZK versus 0 CZK with 50% probability each, and a safe payment, which is gradually increasing from 0 CZK to 240 CZK in the steps of 20 CZK.

The 2D:4D ratio is the ratio between the length of the 2nd finger and the 4th finger of the subjects’ right hand. The hands are scanned on the end of the experiment and then the ratio is calculated.


Expected Contribution:
The main aim of the thesis is to contribute to the growing body of studies focused on the role of hormones in the economic behavior, particularly in competitive behavior and risk-taking. We want to test on our subject pool the dual hormone hypothesis that higher level of basal testosterone implies more competitiveness and risk-taking, but only in subjects with low cortisol. We also analyze how 2D:4D ratio and trait anxiety influence the economic behaviors that has been, so far, mainly done in a sport´s context.