Tag Archives: stock market studies

Women are generally more risk averse than men, except when making big gambles with huge stakes! Hey, let’s have more women traders! What can go wrong?

21 Jun



This study is a few years old, but it popped up recently in a Forbes article that questions whether the UK Banking Commission’s call for more women traders is actually a sane thing to suggest.




The Forbes article only quotes from the abstract, but I have access to the full text article, so let’s take a closer look at it, shall we?




Patrick McAlvanah, the author of the quoted article, starts out by noting that arousal stimuli very often cause differences in how individuals perceive situations and evaluate their own responses. He quotes another study by James Roney, in which a group of men were asked to view images of young, attractive women, and older, more mature women, and then fill out a survey about their career aspirations. Surprising no one, the men who viewed pictures of young, fertile women placed higher value on material wealth and reported themselves as more ambitious.


James R. Roney, Effects of visual exposure to the opposite sex: Cognitive aspects of the mate attraction in human males, Personality and Social Psychology Bulletin, 29 (3) (2003), pp. 393–404




Another study asked men to handle women’s lingerie and view images of attractive women and then play a bargaining game. The men who were exposed to the arousal stimuli were much more focused on immediate rewards, and were willing to accept lower payouts than fairness would dictate.


Again, not really a surprise.


Bram Van den Bergh, Siegfried Dewitte, Digit ratio (2D:4D) moderates the impact of sexual cues on men’s decisions in ultimatum games , roceedings of the Royal Society B: Biological Sciences, 273 (2006), pp. 2091–2095


Wilson and Daly confirmed the effect of attractive women on men’s willingness to accept smaller immediate awards in favor of better long term payouts after the men had viewed images of models, theorizing that the mere presence of young women triggers an involuntary “mating mindset” in men that causes them to disproportionately value short term returns.


Margo Wilson, Martin Daly, Do pretty women inspire men to discount the future?, Proceedings of the Royal Society B: Biological Sciences, 271 (0) (2004), pp. S177–S179


McAlvanah draws all the previous work together to investigate both men and women’s tolerance for risk in the presence of one another, theorizing that:


Individuals may become more tolerant of risks in the presence of the opposite sex if the increased wealth from a successful gamble dramatically improves one’s standing in the mating market. Likewise, if a mere willingness to accept risk is a desirable mate characteristic, then individuals may become more risk-tolerant in the presence of the opposite sex as a signal to potential mates.


And that is exactly what he found. And the higher the stakes, the greater the tolerance for risk. Men were only slightly more tolerant than women, but both demonstrated increased appetites for risk after viewing images of the opposite sex. The control group looked at cars, which had no effect on their risk profile.


risk chart


This effect of increased risk propensity was strongest and most robust for gambles involving large amounts of money, although I still find evidence of the effect for smaller gambles as well. Further, the effect is not specific to males; both males and females exposed to the opposite sex exhibit a heightened risk propensity and at comparable magnitudes.


Here is what is really interesting in McAlvanah’s study: he was looking to see if the attractiveness of the opposite sex had any impact on risk tolerance. Does the effect only kick in when men and women perceive each other to be “mate material”?


Somewhat surprisingly, attractiveness of the photos had no impact: subjects viewing photos of attractive members of the opposite sex behaved identically to subjects viewing unattractive members of the opposite sex. Similarly, viewing appealing versus unappealing car photographs did not impact the control subjects.


When you put men and women together and ask them to make high risk gambles involving large stakes, both men and women will make riskier bets.


Now where would that kind of scenario play out?


stock traders


Oh dear. Two important things happened in the 1980s: the stock market underwent a transformation and regulations on capital requirements were overhauled to allow much, much riskier bets by potential investors; and women started showing up on the trading floor.


Hello Black Monday! October 19th, 1987, 25% of the world’s wealth was wiped out, and the Dow Jones Industrial Average dropped from 2,246 to 1,738 in ONE day.




What the hell happened? That is still the subject of debate, with lots of theories and conspiracies, most of which are about as exciting as cold toast to wade through.


What is more, changes in the nature and structure of our equity market—and a radical shift in its participants—are making shocking and unexpected market aberrations ever more probable.




Looks like to comes down to equity: big gambles with tons of cash and the potential for enormous payouts, if you get the risk factor right.


The UK Banking Commission rightly notes that risk is an unstable factor in current stock markets, and their response is logical, if not sensible:


Women have lower tolerance for risk

We need to reduce the riskiness of stock market gambles

We need more women trading!


Hey, problem solved, right? Get more ladies out on the trading floor and the appetite for risk will decline automatically! Everyone is safer and better off.


battle axe


Except, oh, oops, actually, the OPPOSITE is more likely to happen. Get more women on the trading floor, even seasoned battle axes of solid proportions, and the risk tolerance, especially for high stakes gambles, goes UP, not down.


Oh my. Well, the ladies don’t like that very much. The comments at Jezebel are instructive:


Let’s get rid of the men, then!



Men doing risky things to impress the lady-traders because they can’t help themselves seems like a pretty solid reason to keep THEM off the trading floor. They clearly can’t control their emotions.




Good reading comprehension, SparkPlug! Houston, we have no ignition. Might need a new spark plug. This one doesn’t seem to be working.




Jezebel, as per usual, completely ignores the fact that BOTH men and women exhibit riskier behavior in the presence of one another!


But they may have inadvertently hit on a solution: when women trade with other women, they DO demonstrate a lower tolerance for risk. When men trade with other men, they have a higher tolerance for risk than women, but they still manage to discount the future with some semblance of sanity.


Put them together, though, and all hell breaks loose.


Some markets are very low risk. Some require leaps of faith. Twitter, for example, is valued at $9.8 billion dollars! Based on what? Nobody knows, but they’re gambling that it will payout somehow. Hey, Facebook worked out, right?




It’s unthinkable in political terms, but based strictly on evidence and fact, women should clearly be restricted to trading in low risk portfolios with other women, and leave men to trade the high risk stocks with other men.


That doesn’t mean everyone is going to suddenly make brilliant valuations and the market will never stumble or even outright crash again, but if encouraging a lower risk tolerance is the goal, then making sure men and women do not trade together should, on average, lower the risk profile of the entire market.


I’ll just wait here for my Nobel Prize in Economics.


Honestly, I don’t know enough about this shit to make any real suggestions, but I think I can point out that refusing to even have the conversation because it doesn’t mesh with our political ideologies is dangerous and stupid.


refuse to speak


What we need to do is confirm McAlvanah’s study: it works in theory. Does it work in practice? And if it does, perhaps a few models of women trading with women and men trading with men are in order? I wonder what a proper computer simulation would show over the course of generations of trades?


What we might have is another example of different, but equal. Tim Worstall, at Forbes, is a little pessimistic when he writes:


It is exactly the entry of women into banking that has led to the greater risk taking. At which point the answer is obvious. Rather than encouraging more women into this world we need to ban them from it. Or alternatively, ban men from it. Either way, that’s the only method of reducing the increased risk taking brought on by mixed gender environments.


We don’t need to ban anybody, but why not play to our strengths, and set the field and the competition on gendered lines? What’s so bad about that?




It works for the Olympics. It has to, or no women would ever win anything ever. When it comes to the 50 meter sprint, there is no question that women need to race other women, and men need to race other men.


Why can’t the same be true for stock traders?


Equality may perhaps be a right, but no power on earth can ever turn it into a fact.

Honore de Balzac


Lots of love,








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