ABSTRACT
There is a substantial difference in risk attitudes between men and women. Women exhibit more risk aversion in their portfolios and in experimental financial gamble choices. This is likely to result in lower returns over their lifetimes and thus less investment wealth than men, all else equal. However, some of the difference may be due to the learning of gender stereotypes. This suggests that both nature and nurture impact investing decisions. The research on twins and adoptees suggests that one-fifth to one-third of financial risk aversion, financial decision making, and investment biases can be attributed to one’s genes. However, discovering the association between areas of the human and investment behavior is difficult because the genome is so large. However, it is easier to test specific genes the function of which is known. For example, the variations in the receptors that regulate our sensitivity to our reward mechanisms, dopamine, do appear to be associated with novelty or risk taking.
How the body functions also impacts financial decision making. For example, hormones play an important role. The more testosterone present in utero, or actively present in the body, the higher the tolerance for risk. But financial outcomes also affect a person’s body. Large market declines have been shown to be associated with increases in hospital admissions, especially those for psychological conditions. Last, as people become older, especially after age 70, they experience cognitive aging. This reduces their investment ability and increases their risk aversion. The effect causes significant declines in investment performance. The aging of the population in many countries may find their capital markets impacted by large portions of wealth being controlled by the elderly.
