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Gender, financial risk, and probability weights

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    Abstract

    Women are commonly stereotyped as more risk averse than men in financial decision making. In this paper we examine whether this stereotype reflects actual differences in risk taking behavior by means of a laboratory experiment with monetary incentives. Gender differences in risk taking may be due to differences in subjects’ valuations of outcomes or to the way probabilities are processed. The results of our experiment indicate that men and women differ in their probability weighting schemes; however, we do not find a significant difference in the value functions. Women tend to be less sensitive to probability changes and also tend to underestimate large probabilities of gains to a higher degree than do men, i.e. women are more pessimistic in the gain domain. The combination of both effects results in significant gender differences in average probability weights in lotteries framed as investment decisions. Women’s relative insensitivity to probabilities combined with pessimism may indeed lead to higher risk aversion.

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    Bibliographic Info

    Paper provided by CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich in its series CER-ETH Economics working paper series with number 04/31.

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    Length: 40 pages
    Date of creation: May 2004
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    Handle: RePEc:eth:wpswif:04-31

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    Related research

    Keywords: Gender Differences; Risk Aversion; Financial Decision Making; Prospect Theory;

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    Cited by:
    1. Thomas Dohmen & Armin Falk & David Huffman & Uwe Sunde & Jürgen Schupp & Gert G. Wagner, 2005. "Individual Risk Attitudes: New Evidence from a Large, Representative, Experimentally-Validated Survey," Discussion Papers of DIW Berlin 511, DIW Berlin, German Institute for Economic Research.

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