Why do women take fewer risks than men?

Chris Dawson

In this post Chris Dawson, Associate Professor at the University of Bath, shares his research on the differences between men and women when it comes to risk taking and loss aversion.

It is generally seen as a stylized fact that women are more cautious and take less risks than men. Indeed, a mountain of empirical work by economists, psychologists and biologists have documented this difference between the sexes across many domains.

Documenting and understanding sex differences in behaviours such as risk-taking is important as it can help us to explain other prominent sex gaps. For instance, why men are more likely to try entrepreneurship or invest in equities. Perhaps most importantly, in explaining the glass ceiling—the social barrier preventing women from being promoted to top jobs in management. Indeed, in the UK as of 2022, only 21 women were in the position of the CEO at FTSE 100 and FTSE 250 companies. Whilst factions of the media and advocacy groups typically frame the glass ceiling solely as a product of discrimination, sex differences in behaviours 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.

Despite the substantial evidence indicating the existence of the sex gap in risk-taking and its importance in explaining sex differences in outcomes, particularly within the labour market, we still don’t really know why this gap exists.

In my latest article, focusing on the psychological underpinnings of risk, I attempted to address this important question. The starting point for pretty much all formal models of risky decision making is that people when deciding to invest in the stock market, for instance, weigh up the probability of losing that investment—if the markets should tumble—alongside a valuation of how painful that loss would feel. If women focus more on the possibility of losing that investment and anticipate experiencing more pain from these potential losses, then they will naturally evaluate a given gamble as being riskier.

To shed light on this simple idea, I used data from the British Household Panel Survey (BHPS), which follows the same representative sample of individuals over nearly two decades. Using the first 17 annual waves of the BHPS I extracted for each individual their sensitivity to losses as well as their tendency toward financial optimism.

Sensitivity to loss was defined by looking at how people’s psychological wellbeing changed—as measured by the General Health Questionnaire (GHQ)—in response to negative shocks to household income, whilst financial optimism was defined from responses to a simple question about projections about next year’s financial circumstances.

The main finding, using a well-defined measurement of individual risk-taking asked in the final year of the BHPS (wave 18), was that women report a lower willingness to take risks than men with 53 percent of this gap accounted for by the higher levels of sensitivity to income losses amongst women and a further 3 per cent attributable to the lower levels of financial optimism amongst women.

If societies, as they increasingly are, look towards breaking the glass ceiling, then it stands to reasons that we may want to encourage women to take as many risks as men. Therefore, understanding the mechanics of how the sexes calculate risk differently can be informative.

The big question here, is it possible to change people’s behaviours and ultimately aspects of their psychology? Well, the answer to this question largely depends on whether sex differences in behaviour have biological or environmental roots.

For instance, a certain ideology is that males and female are born with the propensity to behave in similar ways, and therefore sex differences in behaviours stem from socialization and the environment.  But in truth, both biology and the environment matter.

For instance, biologists have complied a long list of sex differences in behaviours that have evolutionary origins. The most prominent evolutionary explanation of human psychological sex differences—especially attributes important to risk-taking such as aggressiveness, fearfulness, and impulsiveness—comes from inter-male competition: the competition between males for access to females or the resources desired by females.

On the other hand, studies have shown the importance of the environment. In fact, a recent study showed how the environment is extremely important in shaping risk aversion, finding that girls from matrilineal cultures—cultures where women tend to have a higher social status than men—tended to be more risk-taking than girls from more traditional, patriarchal societies.

In short, this suggests whilst we may be able to narrow some psychological sex differences, it is unlikely that we can fully close the gap. However, it is not obviously desirable that “both” sexes have the same risk preferences. Certainly not if risk preferences have biological origins.

This question of nature vs nurture therefore leads to some enormous challenges in the pursuit of equalising outcomes across the sexes. If for instance governments are really committed to breaking the glass ceiling, the idea that gendered behaviours are malleable suggests public policy should target early years education and socialization.  On the other hand, if risk taking differences between the sexes is based primarily on nature, public policy may advocate reducing the riskiness of the top jobs in management.

About the author

Chris Dawson is Associate Professor in the Business Economics, University of Bath, School of Management. His research is positioned in the general areas of labour economics and behavioural economics with a particularly interested in how optimism and risk-taking influence occupational choices, labour market performance and happiness.

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