Business

Gender Differentiation In Risk-Taking Behavior

Gender Differentiation In Risk-Taking Behavior: On The Relative Risk Aversion Of Single Men And Single Women

Oded Stark

University of Bonn; University of Warsaw; University of Tuebingen; Georgetown University

Zawojska Ewa

University of Warsaw

November 2015

Abstract:

We relate an observed difference between single men (SM) and single women (SW) in attitudes towards risk to the higher value assigned to social status by SM than by SW. In the marriage market, low status carries a harsher penalty for SM than for SW because when selecting a partner, the social status of a man is more important to a woman than the social status of a woman is to a man. Correlating social status with relative wealth, we show how intensified distaste at experiencing low relative wealth reduces relative risk aversion.

Gender Differentiation In Risk-Taking Behavior: On The Relative Risk Aversion Of Single Men And Single Women – Introduction

1. Motivation

Drawing on data on the holdings of risky assets by households in the US, a seminal paper by Jianakoplos and Bernasek (1998) finds that “single women exhibit relatively more risk aversion in financial decision making than single men” (p. 620). A particularly appealing aspect of the paper is that it sharpens the focus of studying gender differentiation in risk taking by netting out the possible distorting effect of marital status. The finding of Jianakoplos and Bernasek (1998) is echoed by Sunden and Surette (1998) who, using data from the US Surveys of Consumer Finances, report that single women are less likely than single men to take risky investment decisions, namely to choose “mostly stocks,” and are more likely to choose risk-free, interest-earning assets. Comparing single women with single men is a procedure shared, however, by a relatively small body of research which, while finding that women are more risk averse than men, does not hold marital status constant when comparing women with men.1 Furthermore, this body of research does not provide a behavioral-analytical foundation for the differential risk-taking of men and women in general, or for the differential risk-taking of single men and single women in particular. The studies by Jianakoplos and Bernasek (1998) and by Sunden and Surette (1998), like the remainder of the received body of research, remains in need of such a foundation.

In this paper we seek to fill the lacuna. We conjecture that the observed difference between single women and single men in attitudes towards risk is related to the higher value that single men assign to social status than do single women (Huberman et al., 2004), taking the importance attached to low relative wealth as a measure of the importance attached to low status.2 This difference by gender can be explained by the fact that low status carries a harsher penalty for single men than for single women, which, in turn, arises from the fact that low status for single men translates into inferior outcomes in the marriage market: in selecting a partner, the social status of a man is more important to a woman than the social status of a woman is to a man (Kenrick et al., 1990). Correlating social status with relative wealth, we show how an intensified distaste at experiencing low relative wealth reduces relative risk aversion, which, in turn, results in a higher propensity to resort to risky behavior.

To understand why status matters to men more than it does to women we invoke evolutionary, socio-biological reasoning, attributing gender-specific behaviors to different selective pressures faced by females and males.3 Male fitness is limited by access to fecund females, whereas female fitness is limited by physiological and energy constraints. Successful males can enhance their fitness by monopolizing the reproductive performance of several females, whereas the fitness of females cannot profit from multiple mates to the same extent. Females are, therefore, a “contested resource” for which males compete.4 This competition need not take the form of a direct contest for females. Instead, males compete for assets ranging from feeding territories and food to more intangible “resources” like social status which can be converted into a reproductive opportunity, whether because they are directly attractive to females, or because they help quell rival males. In short, status is a means of gaining a valuable resource via a better hierarchical position, and evolution has embedded this concern for status into individual preferences.

The received literature has long correlated high status with superior outcomes in the marriage market, and social status with relative wealth. We refer briefly to a number of studies that have modeled these links. We do so partly in order to explain why we see no need to model the links ourselves, and partly to explain in what ways our perspective differs from the perspective of others.

Deutsche Bank

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