Women tend to report a lower willingness to take risks compared to men, and this is partly because women have higher levels of loss aversion and lower levels of financial optimism, according to new research published in the British Journal of Psychology.
Previous research has shown that men tend to engage in more risky behaviors in various domains, such as driving, sports, investments, and career choices. These gender differences in risk-taking can have important implications for gender-specific outcomes, such as the underrepresentation of women in top executive positions in firms. However, despite the evidence of these differences, few explanations have been provided.
“Risk and gender is a well-trodden path. However, whilst we have an abundance of evidence that women take less risk in most domains, we don’t really know the mechanisms behind why women take less risks than men. So that’s what I tried to answer,” explained study author Chris Dawson, an associate professor of business economics, school of management and the University of Bath.
To investigate the psychological factors underlying gender differences in risk preferences, Dawson used large-scale panel data from the UK British Household Panel Survey (BHPS) spanning almost two decades. The researcher analyzed data from the first 17 waves of the BHPS, which included information from 117,206 observations collected from 13,575 individuals.
The data included an experimentally validated measure of risk attitudes, where respondents rated their general willingness to take risks on a scale from 1 to 10. This measure of risk was found to be highly correlated with actual risky behaviors.
In addition to measuring risk attitudes, Dawson examined two psychological characteristics: loss aversion and optimism. Loss aversion refers to the tendency for losses to have a greater psychological impact than equivalent gains, while optimism refers to the expectation that one’s outcomes will generally be positive. These characteristics were assessed using the BHPS data, primarily focusing on the domain of household finances.
By analyzing the data and examining the relationship between risk attitudes, loss aversion, and optimism, Dawson found that women were indeed less willing to take risks than men. Women exhibited higher levels of loss aversion and lower levels of optimism compared to men. These differences in psychological characteristics explained a significant portion of the gender gap in risk attitudes.
Importantly, even after controlling for the Big Five personality traits (a widely used framework to describe personality), loss aversion and optimism still had significant effects on risk attitudes and explanatory power for the gender gap. This suggests that these psychological characteristics capture different aspects of behavior than the traditional personality traits.
“Typically, when people hear statistics regarding sex differences in behaviors or psychological attributes, their immediate reaction is to list people they know, including themselves, who don’t fit this pattern,” Dawson told PsyPost. “It is important to realize from the outset that these studies are about averages: there exists a huge amount of overlap between the distributions of male and female risk-taking. Therefore, there will be swathes of women who exhibit more risk-seeking behaviors than your average man.”
“However, understanding sex differences in behaviors such as risk-taking is important as it can help us to explain other prominent sex gaps. For instance, the glass ceiling: why women only make up 10% of the top 0.1% of earners. Whilst the glass ceiling is typically framed as a product of discrimination, sex differences in behaviors are also important contributing factors.”
“Ultimately, if you really want to make the ‘big time’ you’re going to need to take on some risk. This suggests tentatively that if you want to get rid of the glass ceiling you will have to encourage women to take as many risks as men.”
The differences in risk attitudes between men and women are consistent with evolutionary theories. In mating competition, men’s earnings and resources are important for attracting mates, and risk-taking can be a way for men to increase their resources or signal their potential for future success. This may explain why men, on average, take more financial risks than women. But culture also likely plays an important role, Dawson explained.
“Major questions left to be addressed is whether sex differences in behavior have biological or environmental roots,” he said “Most economists think it’s about 50/50. There is evidence that in matriarchal or matrilineal societies actually women are more risk seeking. Suggesting culture is very important.”
“On the flip side, huge evidence from biology that sex differences in risk comes from inter-male competition: the competition between males for access to females or the resources desired by females. It is not obviously desirable that ‘both’ sexes have the same risk preferences if risk preferences are biological in nature. This of course leads to enormous challenges in the pursuit of equalizing outcomes (like getting rid of glass ceiling) across the sexes.”
The study, “Gender differences in optimism, loss aversion and attitudes towards risk“, was published June 9, 2023.