Financial Decision-Making: Are Women Really More Risk Averse?

Abstract

A widespread view concerning financial decision-making is that women are more riskaverse than men. A consequence of this stereotype is statistical discrimination which diminishes the success of women in financial and labor markets. The perception that female managers are less risk-prone than men has been put forward as a major cause of ''glass ceilings'' in corporate promotion ladders (Johnnie E. V. Johnson and Philip L. Powell, 1994). Women are less trusted than men to make the risky decisions that may be necessary for a firm's success. Anecdotal evidence from financial markets suggests that similar stereotyping by investment brokers is possibly to the disadvantage of female clients. Women are expected to be more conservative investors than men and are consequently offered investments with lower risks and therefore lower expected returns (Penelope Wang, 1994).Given that preconceptions concerning the risk propensities of men and women seem to affect their economic success, it is important to examine whether the above stereotype reflects actual economic behavior. There is some evidence supporting the view that women are more risk-averse than men in financial decision-making. Recent survey data suggest that wealth holdings of single women are less risky than those of single men of equal economic status (, 1998). Also, when asked about their attitudes toward financial risks, women seem to report a lower risk propensity than men (Robert B. Barsky et al., 1997). Finally, experimental evidence suggests that women may be more risk-averse than men toward gambles (Irwin P. Levin et al., 1988). It is questionable, however, whether stereotypic risk attitudes can be confirmed by the above survey and experimental evidence. First, in survey data, gender-specific risk attitudes may be confounded with differences in individual opportunity sets. Survey studies of individual wealth composition provide only weak control for gender-specific information on choice options and gender-specific wealth constraints in the underlying financial decisions.Second, behavior in abstract gambling experiments may not correspond to risk behavior in contextual decisions, as has been shown by John Hershey and Paul J. H. Schoemaker (1980). Thus, while abstract gambling experiments provide strong control of the economic environment surrounding risky decisions, their data may not be adequate for drawing conclusions on gender-specific risk attitudes of investors and managers.The objective of the study reported here is to circumvent the above problems in analyzing gender-specific risk attitudes. We conducted an experiment in which subjects not only made abstract gambling decisions, but were also confronted with financially motivated risky decisions embedded in an investment or insurance context. The implementation of such contextual decisions allowed us to examine gender-specific risk propensities in contexts which may be relevant to financial and labor markets. At the same time, compared to survey 382 AEA PAPERS AND PROCEEDINGS MAY 1999TABLE 1-EXPERIMENT...

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