Women, Risk, and Finance
Courtney Martin at Feministing writes about research indicating that women are better investors than men:
A 2005 study from the Center for Financial Research at the University of Cologne documented differences between male and female fund managers: Women managers tended to take less extreme risk and to adopt more measured investment styles (which perform well over time). And according to research published in 2002 in the International Journal of Bank Marketing, women tend to make investment-related decisions with a detailed, comprehensive approach, while men are more likely to simplify data and make decisions based on an overall schema.
I always get nervous when scientists or sociologists start making wide-sweeping gender claims, but I’m also not scientifically sophisticated enough to evaluate whether these studies are valid.
I’ve been thinking about this a lot for months, and I don’t really think there’s any reason for feminists to be bashful about this line of research. It’s pretty well-established across a variety of domains that women are better assessors of risk than men. Men are more likely to be involved in car accidents, men are more likely to be involved in crime, etc. I believe there is a line of research that attributes these different behaviors to inherent biological differences, but whether or not one wants to believe that (I think it’s pretty easy to imagine an alternate story about socialization into macho cultural norms) the pattern itself is pretty clear, and it appears to extend into the realms of finance and investing. The fact that finance is so male-dominated despite indications that men are, on average, going to be worse at it is pretty intriguing prima facie evidence of discriminatory environment that’s contributed to very serious global economic problems.
47 Responses to “Women, Risk, and Finance”
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June 25th, 2009 at 12:21 pm
“I think it’s pretty easy to imagine an alternate story about socialization into macho cultural norms”
But why do so many cultures have macho cultural norms?
June 25th, 2009 at 12:27 pm
The fact that finance is so male-dominated despite indications that men are, on average, going to be worse at it is pretty intriguing prima facie evidence of discriminatory environment that’s contributed to very serious global economic problems.
Or maybe investment bankers need to be good at math.
/extending your troublesome
June 25th, 2009 at 12:29 pm
Do either of these studies actually show that portfolios run by women actually outperform those run by men? It’s not clear from the above that they do.
And why does Matt assume that greater risk aversion equals better portfolio management?
June 25th, 2009 at 12:30 pm
One theory: cultures with macho cultural norms literally killed most other cultures a long, long time ago, when upper body strength, adolescent testosterone levels, and a sharp stick were weapons of mass destruction.
June 25th, 2009 at 12:30 pm
Two points
Feminists are bashful about any research highlighting differences between men and women because those differences typically get used against them, no matter what.
People working in the financial sector thrive by extracting value for themselves, not necessarily by being better long term investors. Having superior performance over time is one possible way to get rich from other people’s money, but it does not appear to be that critical for a successful career.
June 25th, 2009 at 12:33 pm
What about politics? There are enough female elected officials in the world now to see if they tend to be less corrupt, or better managers. Any study on this topic?
Or maybe investment bankers need to be good at math.
I knew a lot of women very good at math in college, and fewer proportionally chose a career in finance. There’s something about moving large amounts of money on a screen all your life that must please the male psyche.
June 25th, 2009 at 12:34 pm
Even if it’s true, it only means that you’d want a woman to be your personal broker. It does not necessarily mean that women should play a greater role in the financial world, where risk-management is one factor among many.
Mike
June 25th, 2009 at 12:34 pm
Or maybe investment bankers need to be good at math.
I knew a lot of women very good at math in college, and fewer proportionally chose a career in finance. There’s something about moving large amounts of money on a screen all your life that must please the male psyche.
Sure. I don’t actually think women are innately worse at math than men. I was just pointing out what was problematic about Matt’s argument.
June 25th, 2009 at 12:35 pm
I don’t see how feminists can embrace results like these without considerable caution given their (rightful) hostility towards any studies showing men being better than women at something important.
June 25th, 2009 at 12:38 pm
Recent study: once you control for other factors (mostly economic), women are the equals of men at math.
June 25th, 2009 at 12:40 pm
Male animals (and plants) tend to show higher variance in fitness than females. This is a well established ecological/evolutionary pattern. It follows from the low price of sperm compared to eggs.
This means that males who take big risks can hope for big rewards if they win. A big risking female can only expect a slightly greater reward than if she took no risk at all.
You don’t need to be a biological determinist to recognize that this will influence the behavior of males and females.
June 25th, 2009 at 12:41 pm
I don’t see how feminists can embrace results like these without considerable caution given their (rightful) hostility towards any studies showing men being better than women at something important.
It’s easy to accept the results if you abstract it to the behavior rather than the biology. There’s nothing that prevents a male money-manager from accepting the techniques and strategies.
June 25th, 2009 at 12:41 pm
This is thinner than your usual good stuff, matt. more car accidents and crime doesn’t remotely entail poorer risk assessment. Just for starters, you have to factor in people’s preferences and abilities. If women both wanted to and were just as capable as driving fast as men, and wanted the spoils as much and were just as capable of (most kinds of) crime as men, then we could at lest begin to assess. You can’t infer from daredevilry that the person has poor risk-assessment. You have to take into account that person’s individual preferences of risk vs. reward. that said, please don’t think I’m one of those who think that people always make rational choices, given their preferences. Not remotely. And I am also totally open to the hypothesis that women are on average better risk-assessors, and better lots of things, just as I am open to the claim that men are on average better at lots of things. But the fact that women get more risky plastic surgery than men doesn’t straightforwardly speak to their poor ability to assess risk.
June 25th, 2009 at 12:42 pm
I don’t see how feminists can embrace results like these without considerable caution given their (rightful) hostility towards any studies showing men being better than women at something important.
Well, they may be more inclined to embrace studies which challenge–rather than confirm–the conventional wisdom.
June 25th, 2009 at 12:42 pm
Failing to avoid a risk and being bad at assessing its probability are different things. You might avoid a risk precisely because you are bad at assessing its probability, e.g. you won’t be killed in a plane crash if you stop flying because you think the odds of a crash are much higher than they are.
June 25th, 2009 at 12:46 pm
The problem I tend to have with these studies is that, assuming they are correct, the ultimate conclusion is that hundreds of millions of investors, ranging from small-stake individuals to gigantic pension funds and insurance companies (and including many women), are consciously throwing away billions (or even trillions) of dollars a year just to spite female fund managers. While I understand why that reading would hold superficial appeal to radical feminists, I don’t see how it’s reconcileable with reality.
June 25th, 2009 at 12:54 pm
The fact that finance is so male-dominated despite indications that men are, on average, going to be worse at it is pretty intriguing prima facie evidence of discriminatory environment
That is true only if there is equal interest in entering finance amongst men and women
June 25th, 2009 at 12:55 pm
Just Dropping By, your argument doesn’t make any sense.
To go back to the study, it doesn’t say anything about whether women are better fund managers in general. One thing to keep in mind is that there are a lot less women working in finance than men today. The women in the study have to be highly atypical compared to the general population.
So there’s nothing to learn here for biologists or sociologists without a larger theory explaining why those women chose this profession. Just, if the conclusion is true, get a female manager for your savings.
June 25th, 2009 at 1:00 pm
sp6r beat me to it. I think we’re on to something here. With all this talk about “the best and the brightest” choosing finance in the last years, I think it should rather say the “best and brightest” men. If that’s true, young women in all other sectors are on average better and smarter than men.
Or maybe those traders and analysts are just not that bright. That would explain the recent events.
June 25th, 2009 at 1:00 pm
I haven’t read these studies (so why exactly am I commenting?) … but …
I can imagine that either they’d have to look at very long-term data, or the analysis would have to be very clever. Otherwise, your findings would probably be highly dependent on what the economic climate was like at the time the study was done. People with risk-seeking strategies would look much better in a study that happened to be done during a booming market like the late 90s, while people with more prudent strategies would look like geniuses when things went downhill. (And if you did this study last fall, you’d probably conclude that men and women both make terrible investment decisions….)
June 25th, 2009 at 1:13 pm
Re Matthew’s claim “It’s pretty well-established across a variety of domains that women are better assessors of risk than men ”
—————-
I think this hypothesis is decisively REFUTED when you look at whom they marry.
You disagree? Let’s ask Hillary.
June 25th, 2009 at 1:20 pm
Men are about twice as likely to have mental retardation: a lot of it is X-linked, such as fragile X and Duchenne muscular dystrophy. Presumably they’re socialized into thinking that they only have one X chromosome.
June 25th, 2009 at 1:24 pm
This is a pretty terrible post.
June 25th, 2009 at 1:31 pm
I think there’s a pretty big distinction between what fund managers do (the area where the research was done, it appears) and the Wall Street trading world. Maybe women would do better there too compared to the current largely male population there, but I don’t think the study says much about that.
June 25th, 2009 at 1:31 pm
I don’t think it’s correct to say that ‘women are better assessors of risk than men.’ A more appropriate statement would be that ‘women seem to be more risk-averse than men.’ Men get into more car accidents, but they also get places faster. Men are more likely to be involved in crime, but men are also more likely to benefit from crime without getting caught. There are upsides to all of these risky behaviors as well as downsides.
If you feel that a woman’s risk-averse attitude is more beneficial to society, that’s fine, but it’s not right to just say that men don’t know how to assess risk. Until proven otherwise, there’s no reason to think that men aren’t aware of the risks, when they very well might be, and choose to take them anyway. I don’t have any statistics on this at all, but I’m sure that men are more likely to gamble than women, too.
June 25th, 2009 at 1:41 pm
It’s pretty well-established across a variety of domains that women are better assessors of risk than men. Men are more likely to be involved in car accidents, men are more likely to be involved in crime, etc.
Matt, it may be that women are better assessors of risk than men. But the kinds of results to which you are alluding don’t show that. Instead they would only seem to show that men are less risk-averse than women. An assessment of risks associated with the consequences of various alternative courses of action doesn’t generate a guide to action unless it is paired with an assignment of values to those consequences. It could be that the positive and negative values men and women assign to various consequences, including dying, are different on average than those assigned by women.
But even when values are assigned, some people prefer the less risky action to the more risky, even when expected values are equal. If given an option between two double or nothing bets on an even chance coin flip, one of which costs $100 and the other of which costs $10, many will prefer the $10 bet although the expected value of both bets is $0.
One other possibility is that some groups of people are just generally more fearful than others, and that can lead to irrational forms of risk aversion. Suppose your choice is between (i) a $100 bet with a 99% chance of a $20 payoff and a 1% chance of losing the $100 and (ii) a $5 double or nothing roll of a fair die with the $5 win for rolling a one through five and the $5 loss for rolling a six. The expected value of the first bet is $18.8, while the expected value of the latter is $3.33. Yet some will prefer the latter bet to the first. One can argue about where the line between rational and irrational risk aversion should be drawn, but it can clearly come in deeply irrational forms.
If it should turn out that the reason women are less likely to experience extreme losses is that they are also less likely to experience extreme gains, one would then like to see some additional research to understand the intensity of risk aversion at work.
June 25th, 2009 at 1:43 pm
JosephinBroklyn scooped me.
June 25th, 2009 at 1:44 pm
I have no problem reading an article that says that women are intrinsically better investors than men, but this, as presented, seems to fall prey to the fallacy of the single cause. That women, in this study, had taken fewer risks and made more measured investments should not lead one to directly conclude that they are, in fact, actually better at assessing risk and managing money when it is equally possible, for example, that women in these positions are under more pressure to not “screw up” because they are less trusted at their jobs than their male counterparts and under more scrutiny by their bosses as a result. There are all sorts of variables that don’t seem to be accounted for here, but that won’t stop anyone from making a correlation/causation error.
June 25th, 2009 at 2:05 pm
An alley might contain an individual with the intent to rape. One cannot say that a woman who avoids that alley is more risk-averse, or better at assessing risk, than the man who walks through it. Simply, more risk exists for women than for men.
June 25th, 2009 at 2:14 pm
Perhaps the financial industry has discriminated against the risk-averse, and this pattern has affected more women than men?
We don’t really know.
I can tell you anecdotally that many risk-averse men have left the macho financial industry in disgust, knowing that they would never fit in.
June 25th, 2009 at 2:26 pm
Just Dropping By, your argument doesn’t make any sense.
Yes it does. The quote says, “Women managers tended to take less extreme risk and to adopt more measured investment styles (which perform well over time).” (Emphasis added.) If female fund managers are actually outperforming male fund managers to a statistically significant extent, then we should expect to see more and more investors move to female-managed funds over time (since investors tend to want higher average returns), making female fund managers more powerful/prominent/influential/etc. in the industry. If we don’t see such movement, then there are only two possible explanations: (a) the survey was flawed in some manner, or (b) investors are saying, “I don’t want a girl getting cooties on my money” and then deliberately investing with a poorer performing, but male-managed, fund. I find the latter possibility extremely implausible because, to the best of my knowledge, most investors have no clue as to the gender of any particular fund’s manager and, also, investors generally want the highest rate of return their risk tolerance will permit.
June 25th, 2009 at 2:43 pm
31 Your argument omits the obvious possibility: the belief that Bad Stuff Won’t Happen to Me. If men are the one’s who invest the family’s boodle, men will tend to go to the less risk averse side of the ledger.
June 25th, 2009 at 2:54 pm
PS Look at the EMPIRICAL DATA — at who has the money — instead of a bunch of hand-waving academic bullshit put out by people who have about $50,000 in a 401K drawing 1 percent interest.
Jesus Christ — did Al Qaeda put stupid juice in the water?
June 25th, 2009 at 3:15 pm
t’s pretty well-established across a variety of domains that women are better assessors of risk than men.
Can you cite some of this research? I am not challenging you — it just flies in the face of my personal experience and I am interesting in seeing the justification of this.
For example, there is a lot of anecdotal evidence that suggests women were much worse at estimating risk in the housing bubble. The early housing blogs had a lot of misogyny, with guys bitching that either they or people they knew had wifes that urged them into getting homes more expensive than they were comfortable with.
June 25th, 2009 at 3:39 pm
Just Dropping By, you assume the fact that women are better fund managers (assuming it is true) has been well known for a long time. Or at least that it has been a subject of study for a long time. Plus, even using this kind of research is probably toxic if they have to explain their strategy to their clients (”We have noticed that Mormons on average performed below other managers, therefore we won’t deal with them anymore.”).
I guess we would all need to take a closer look at the study. This line in particular seems counter-intuitive, or highly related to the current depression: “more measured investment styles (which perform well over time)”. But I guess discussing what Matt thinks of what a feminist writer thinks of what a study says is what Internet is all about.
June 25th, 2009 at 3:49 pm
Of course Mr. Yglesias and his buddies are skeptical of this study. It challenges the absurd idea that gender differences are socially constructed, as opposed to fundamental, innate, essential realities. Who needs facts when you have something better, i.e. feminist dogma. It is clear why Mr. Yglesias and other feminists say “Lalala, I can’t hear you” when anyone points out the evidence for innate and essential gender differences that originate not in society but in nature. WHat is less clear is why any civilised society should take the feminists seriously.
June 25th, 2009 at 4:00 pm
(Gordian Economic Knot!)
(Very Old Very Wise)
Now, Warren Buffet is a Very OLD, and Very Wise Economic Genius, and there can be no doubt about that, the man may very well still have the first penny he ever had put into a piggy bank for him by his parents, along with the others he earned during his formative year until (4) Four when he made his first Million. But, this time is not like any other time in economic history that he has based his economic predictions upon.
(Unemployment)
Today, the Empire has to go thru Stagnation, Hyper-Inflation, and Devaluation, there is simple no way around it. The Economy is already in Stagnation, with the unemployment real figures at between (17%-20%), Seventeen to Twenty percent, which means (1 of 5) one of five people you pass on the street is out of work. But, that is just the beginning, all the jobs have been shipped out of the Empire by (NAFTA) The North Atlantic Free Trade Organization, the Empire produces NADA, NOTHING, ZERO, ZIP, the society is based upon Sales, Services, Repair or simple replacement of products made in Brazil, Canada, China, England, Germany, Japan, Korea, Mexico, any place but the Empire, this includes enough food, and energy, for its own population.
(IMP Loan Sharking Vs BRIC Portfolio Diversification)
And, basic Loan Sharking via the (IMF) International Monetary Fund, whose leaders are directly appointed by the Empire, giving countries money on a Quid Per Quo, the old Mob “I will do this thing for you, but when a favor is asked in return it can not nor will not be refused,” The bigger the loan the bigger the favor. The (IMF) is printing and spending money based upon NADA, NOTHING, ZERO, ZIP, just as fast as the ink will dry, even bringing in fans to make them dry faster, by the pallet loads, which they lose by the Billions. The Global Economy has put together a portfolio of all its Eggs in One Basket, and the basket has fallen apart with egg omelets’ material on the geo-economic floor, and the (BRIC) Brazil, The Russian Federation, India, and The (PRC) Peoples Republic of China are each holding baskets tied together with (BRIC/CBS/SDR’s) BRIC, Cooperative Banking System, with Special Drawing Rights of its separate “Sphere of Economic Influence” membership, based on hard currency “GOLD” and other valuable hard currency, along with a floating currency rate of the day, based upon different stocks, bonds, mutual funds and commodities, if one basket drops the others will be able to re-supply the now empty one.
(Culture Shock)
He (CLINTON) told an Arab-American audience of (1,000) One-Thousand, people that the (U.S.) or (AIE/W) American Israeli Empire-West, is no longer just a black-white country, nor a country that is (DOMINATED BY) Christians (AND A POWERFUL JEWISH MINORITY), given the growing numbers of Muslims, Hindus and other religious groups here. (Source: CHRISTINE SIMMONS, Associated Press Writer, Bill Clinton urges Americans to be mindful of the country’s growing diversity). This statement of Bill Clinton has in fact been checked out by the Canadians and has been substantiated, it is correct, in other words the Ethnic, Cultural, Religious, and Language of the Empire WILL BE, Black-African-Muslims’-Arabic Speaking by (2050), and that is a major Social Upheaval for any Empire to go thru without a major Economic Crisis.
(Gordian Knot)
Old Think, Unemployment, Lack of Economic Structural Diversification (Industry, Service, Transportation, Technology, etc.), Lack of Portfolio Diversification, (Culture Shock), Preemptive Nuclear War at worse, or hundreds of years of war with no end, these are just the tip of the ice-berg. History has shown that no Empire have survived the massive onset of so many shocks one would doubt that Warren Buffet even as Very Old and Wise has had this Gordian Economic Knot to deal with.
lILITH OR EVE would not want to take the blame for this one!
TRIATHLON
June 25th, 2009 at 4:03 pm
Isn’t this the third time you’ve posted the exact same study? You really like this, don’t you?
Anyway, let’s debunk this “women get in fewer accidents thing”. I don’t have access to the full paper, but from this study it turns out:
(a) Women are better drivers than men at a young age, which dissapears over time
(b) Men get in more fatal accidents
(c) Women get in more minor accidents
So I don’t see this as particularly good evidence for “women being better risk assessors”.
June 25th, 2009 at 5:19 pm
I knew a lot of women very good at math in college, and fewer proportionally chose a career in finance. There’s something about moving large amounts of money on a screen all your life that must please the male psyche.
It doesn’t “please the male psyche” to move large amounts of money on a screen all day. It simply pays lots of money to do that as opposed to careers in other math-intensive fields, like physics, which will lead you on the fast track to a life as an underpaid monkey-for-hire.
I assume women who are good at math either don’t care as much about money or realize that their math skills are orthogonal to making money and choose non-math-related careers that offer them good wages without having to put up with the bullshit in finance.
June 25th, 2009 at 6:23 pm
Today my Dad entered the VA Healthcare System at Batavia, New York, a long term hospital facility available only to veterans and their spouses.
It is a phenomenal place, on every level imaginable. I wish my Dad was ten years younger so he could appreciate its greatness. True American greatness.
Unfortunately he can’t, but I could and did. At first I wasn’t sure what it was about the place, but I was there a long time (6 hours) and it began to dawn on me a few hours in, the whole shebang is run by women. Women were running around everywhere providing friendly, efficient care. Bragging about it too, calling the place “Shangri la” and “the Taj Mahal of Healthcare facilities.” “Five star rating” don’t you know, and “proud to be a part.”
Believe it or not, I saw one official looking woman heading down a hallway in a hurry but as she did she was expertly dusting pictures on the wall with a quick swipe of a feather-duster.
The female administrator who set us up when we first got there? She was outside when I left, and as she waved a friendly goodbye, I noticed she was filling a bird feeder.
June 25th, 2009 at 6:24 pm
MY ought not opine this way in public.
Ask Larry Summers.
June 25th, 2009 at 10:46 pm
Now what your really want is a low cost diversified passive fund without any fund manager doing bets, no matter if male or female. The point of active fund managment is to cheat customers, for example with that type of bets males are more likely to make. The woman didnt get what their actual job is.
In general, woman are less overconfident, which is good when it comes to investing or driving (or maybe just less overconfident when it comes to cars and investing, who knows?). For the business of cheating customers which the investment business is all about on the other hand, overconfidence is good. The best lier is the one that actually believes his own lies.
June 25th, 2009 at 11:50 pm
[...] Yglesias says don’t worry. Well Matt, you should worry. Reality is often best understood on a case-by-case basis, but no [...]
June 26th, 2009 at 12:17 am
kid destroyer,
I see your 3 points as pretty good evidence that women are better risk assesors.
Avoiding small accidents is mainly a matter of skill. Parallel parking is difficult and no matter how careful, there is a certain risk you’ll bump into another car.
Avoiding fata accidents is a matter of risk assesment. If you don’t speed and don’t take stupid risks you are much less likely to get killed in traffic than if you do.
Matthew,
the idea of macho socialization has a problem in explaining that most of these macho things are pretty universal. If it was a matter of culture then it should vary much more location to location. But I think men tend to take bigger risks and get killed in more stupid ways than women pretty much all over the globe.
June 26th, 2009 at 2:27 am
Esben (#44), you’re making the same mistake as MY, confusing risk aversion with skill at assessing risk. You can avoid risky behavior without having a good idea of how risky it really is, and you can knowingly engage in risky behavior if you feel the reward outweighs the risk.
If we observe that women speed less than men, one possible explanation would be that men think speeding is less risky than women do (which could mean either men or women are assessing the risk incorrectly – or both, in opposite directions). Another would be that men think arriving quickly is more valuable than women do. Yet another would be that women are less likely than men to engage in risks no matter what the rewards are.
June 26th, 2009 at 7:26 am
Esben,
Don’t bother trying to convince Mr. Yglesias. He’ll go one believeing forever that it’s ‘macho socialization’ or some such nonsense. Heaven forbid that there should actually be innate, natural, biological, essential differences between men and women and that society should recognize these differences. Because that would contravene feminist dogma, and Mr. Yglesias could not get invited to the Georgetown wine-tasting parties hosted by the gender studies professors anymore. Can’t have that, don’t you know.
June 26th, 2009 at 5:56 pm
It’s pretty well-established across a variety of domains that women are better assessors of risk than men. Men are more likely to be involved in car accidents, men are more likely to be involved in crime, etc.
The first sentence doesn’t follow from the second, because of the importance of the tails of bell-curves.
As has been referred to a couple of times in this thread, males have greater variance than females on a number of variables. Imagine, as a thought-experiment, drawing the bell-curves for men and women of risk assessment in some domain, such as traffic accidents. Assume that the two bell-curves have the same mean, but the one for men has greater standard deviation (ie, is flatter). Then the left tail of the curve for men will extend further than the left tail of the curve for women — but the left tail is where the traffic accidents happen. Thus men will have more accidents than women, despite having the same average risk-assessment ability.
This phenomenon also occurs for crime, or any other domain in which the events being counted occur in one of the tails of the bell-curve, including things like extremely high mathematical ability.