The link between your love life and your investments

By Susan Pinker
Globe Investor magazine online, March 20, 2008

Find yourself unwilling to trust someone else to manage your money? It could be because you don't have much oxytocin, the same hormone released into the bloodstream during sex.

The researchers who tested this are at the frontier of a new field called neuroeconomics, which applies the precision of brain science to the vagaries of economic decisions. They asked their questions not in the bedroom or in a boardroom, but in a lab. Using the gold standard of medical testing - the placebo-controlled double-blind study - Michael Kosfeld, Markus Heinrichs and their Swiss research team used a nasal spray to squirt oxytocin up the noses of male investors.

They then compared their oxytocin-fueled transactions with those of men who used a placebo during a game with real monetary stakes. Based on animal research, the group of economists and psychologists predicted oxytocin would increase trust in humans, and with increased trust would come a freer hand and less skittishness about financial risk.

Acting as both hormone and neurotransmitter, oxytocin surges when women have babies, when they feed them, during sex, and when they connect intimately with other people.

But it's also produced by men, and a little boost of this tiny peptide helps them navigate their social world. Recent studies have shown that a squirt of that same nasal spray, which allows oxytocin to cross the blood brain barrier, makes it easier for men to read subtle emotions in other people and to face down social stresses.

That's why it's known as the hormone of attachment. It allows people to make that first move when approaching someone new. By blocking fear receptors in the brain, it allows people to trust.

But trusting your luck and trusting your business partners can be very different things, and the researchers used game theory to try to separate the two.

Here's how their game worked. An investor could choose to give any amount of money to a "trustee." Once invested, that sum would be tripled, but the investor couldn't control how the trustee used the funds. Enriched by this windfall, the trustee could opt to share the proceeds with the investor, and both players would then get a nice payoff. Or, the trustee could be selfish and hoard the profits.

The investor thus faces a dilemma. If he trusted the other guy he can boost his take. But he could also be stiffed. Not only would he lose his money but his confidence would be betrayed.

So what was the hormone's effect? Twice as many men in the oxytocin group showed the highest possible level of trust, handing over the maximum amount of money to a virtual stranger. But here's the catch. Oxytocin boosted trust only when there was some kind of social context. The hormone had no effect when human beings were replaced by a machine that spat out random rates of return. So trading at a distance would not be affected by these hormones.

Your love life would have no impact on online investing, for example, or on transactions made at arms length. But a neuropeptide generated deep in the hypothalamus and by your reproductive organs might well reduce your fear about financial gambles in social situations, like an investment club or handing money to your broker at the golf club on the weekend.

Special to The Globe and Mail