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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.

Suggested Citation

  • Helga Fehr-Duda & Manuele de Gennaro & Renate Schubert, 2004. "Gender, financial risk, and probability weights," CER-ETH Economics working paper series 04/31, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich.
    • Handle: RePEc:eth:wpswif:04-31
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    File URL: http://www.cer.ethz.ch/research/wp_04_31.pdf
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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.
    2. Andersson, Mats, 2012. "Assessing non-industrial private forest owners’ attitudes to risk: Do owner and property characteristics matter?," Journal of Forest Economics, Elsevier, vol. 18(1), pages 3-13.
    3. Paula Stephan & Asmaa El-Ganainy, 2007. "The entrepreneurial puzzle: explaining the gender gap," The Journal of Technology Transfer, Springer, vol. 32(5), pages 475-487, October.

    More about this item

    Keywords

    Gender Differences; Risk Aversion; Financial Decision Making; Prospect Theory;
    All these keywords.

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior

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