Is the Mars versus Venus distinction efficient enough to refer to the age-old dialog over the differences between men and women - differences that will be undoubtedly questioned, researched, and challenged for lifetimes to come? Women and men may differ in their propensity to choose a risky outcome because of innate preferences or because those preferences are modified by pressure to conform to gender stereotypes, more specifically said, due to both nature and nurture. The interesting question is thus the weight of each factor and the interaction of the two.
The vast majority of the decisions people make involve risk. Risk aversion is a concept in economics and finance based on the behavior of humans. It is the reluctance of a person to accept a bargain with uncertain returns rather than more certain but possibly lower returns. Although it is the subjective tendency to avoid unnecessary risk, it seems to completely depend on an individual. When facing a risky decision, leaders must weigh a lot of factors. Furthermore, one would naturally consider the likelihood that the risk will help hit strategic objectives and the effect the risk will have on the people involved. Recent work in experimental economics has examined to what degree the under-representation of women in high-paying jobs or high-level occupations may be due to nature, nurture, or the combination of the two. This implies that differences in risk attitudes could affect individual choices about seeking performance feedback or entering a competitive environment. Preferences, concerning time, risk, and social interactions, systematically shape human behavior and contribute to differential economic and social outcomes between the genders.
Rachel Croson and Uri Gneezy in their paper “Gender Differences in Preferences” review the literature on gender differences in economic experiments by considering risk, social and competitive preferences. Moreover, by speculating on the source of these differences, as well as on their implications, they warn about the bias that only papers finding a gender effect might end up being published. The findings of the paper are important as a source for understanding gender differences and as a starting point to illuminate the debate on gender-specific outcomes in the labor and goods markets. Risk preferences are a key ingredient in models of financial decisions. They play an essential role in modeling the demand for insurance, the choice of mortgage type, the frequency of stock trading, and the acquisition of financial information. Understanding investor risk preferences has several important implications. It offers guidance for the calibration of optimal portfolio choice models, it contributes to the asset pricing debate on time-varying risk aversion and it permits the assessment of the welfare costs of financial mistakes such as under-diversification and non-participation in financial and insurance markets. Moreover, it helps financial intermediaries to comply with investor protection regulations that require the measurement of risk preferences before providing financial advice.
Economists and policymakers have observed gender differences in a number of different domains, including consumption, investment, and, perhaps of most concern, the labor market, often hypothesizing that these differences are caused by preferences between the genders. The paper reviews the economic experiments in which the decisions that individuals make allow the researcher to isolate one factor of a decision, such as risk preferences, and study it in isolation from other factors, such as altruism. Those experiments are also replicable, which means that the same experiment can be conducted multiple times with different individuals with diverse backgrounds and demographics. This allows the testing of the impact of various parameters, such as self-selection and learning, on both genders.
Starting with discussing risk-taking in objective probability lotteries, with known probabilities and dollar outcomes by considering ten papers that investigate gender differences in risk preferences using both real and hypothetical chances of winning, the robust finding is that men are more risk-prone than women in the vast majority of environments and tasks. The paper implies that the inclusion of controls other than gender, such as age, nationality, or race in the analyses of previous studies, varies. There are two notable and interesting papers that Croson and Gneezy reviewed regarding this. First, Melissa L. Finucane et al. (2000) find a gender difference among whites, but not among any other ethnic group. This is important because it implies there may be cultural biases causing gender differences in risk-taking. The second paper is by Renate Schubert et al. (1999) who find one situation in which men are more risk-averse than women: when lotteries are framed as losses rather than gains. Some studies have shown that sex is significantly related to asset allocation where women invest their pension assets more conservatively than men, in the minimum-risk portfolio available to them. This implies that women are more risk-averse than men in lab settings as well as in investment decisions in the field. While gender differences in risk preferences are relatively consistent, very few explanations are offered for the observed differences.
The majority of literature documents gender differences in risk-taking by presenting women as more risk-averse than men. Croson and Gneezy indicated some of the possible factors that cause this gender difference. One major factor is the affective reaction to risk. Men and women differ in their emotional reaction to uncertain situations and this reaction results in differences in risk-taking. Emotions affect the evaluation of outcomes as well as the evaluation of probabilities. However, emotions are not the only reason for gender differences in risk preferences. Men are also more confident than women and, as a result, may have a different perception of the probability distribution underlying a given risk. Moreover, males tend to view risky situations as challenges, while females view them as threats, which leads to increased risk tolerance. It is interesting to note that these differences are attenuated by experience and profession. For example, studies with managers, entrepreneurs, and professionals, find no gender differences in risk preferences. However, more detailed research is required to consider the possible driving forces behind this exception to the rule.
Social preferences are modeled in the economic literature in the form of altruism, envy, inequal aversion, or reciprocity. While all the models describe how an individual might be other-regarding, the extent and form of the social preferences may also differ across the genders. The authors discuss a number of studies that demonstrate how strongly, and in what direction, social preferences manifest themselves, by including evidence on altruism and inequality aversion from ultimatum and dictator game studies. The evidence on reciprocity is also included from studies using trust and related games. Research from psychology suggests that women are more sensitive to social cues in determining appropriate behavior. Small differences in experimental design and implementation can affect these social cues, leading women to appear more other-regarding in some experiments and less other-regarding in others.
What happens when people find themselves in competition? Recent findings suggest that women are more reluctant than men to engage in competitive interactions like tournaments, bargaining, and auctions. Additionally, men’s performance, relative to women’s, is improved under competition. While women seem to be less likely to choose to compete than men, yet, those who do choose competitive environments perform just as well as men in those settings. Why do we see this gender difference in attitudes and behavior? It might be rational for women to avoid negotiating in some situations. This explanation is related to the findings in the discrimination literature regarding incentives to underinvest in education, for example, because the expected rewards are lower for women than for men. An additional set of data comes from experiments with children. The fact that gender differences exhibit only later in life suggests an environmental cause, which further supports the argument that societal structure is crucially linked to the observed gender differences in competitiveness, and thus, that nurture matters.
An important bias in the literature on gender differences is that journals are more likely to publish papers that find a gender difference than papers that do not. This may cause researchers to invest more effort into finding differences than finding no differences. Croson and Gneezy devote much attention to including studies that do not find gender differences, even when they are unpublished, to counteract this bias. It is important for researchers to routinely record the gender of the participants when possible to help us greatly expand our understanding of gender differences and avoid the publication bias that is currently in place.
The issue is that historically risk-taking has been framed so narrowly that it skews our perceptions. For example, the majority of studies that point to men having a greater inclination for risk-taking define risk in physical and financial terms. They don’t point to risks like standing up for what’s right in the face of opposition or taking the ethical path when there’s pressure to stray — important risks that women may be particularly strong at taking.