Monday, February 20, 2012

Shaping risk preferences across time

by Alison Booth, Lina Cardona Sosa and Patrick Nolen


February 20, 2012

Some blame women’s under-representation in high-level jobs on differences between the sexes in risk aversion and competition. But are these differences in behaviour hardwired or learned? This column describes a study that tackles this thorny question with a controlled experiment in single-sex and mixed classrooms in a British university. Women are found to become far less nervous about uncertainty over time with the men out of the room.

The majority of experimental studies investigating gender differences in risky choices find that women are less willing to take risks than men. This research is summarised in Eckel and Grossman (2008) and Croson and Gneezy (2009). However, these experimental studies investigating gender differences in risky choices typically do so only at a single point in time.

Why might there be gender differences?

Only recently have economists begun to explore why women and men might have different risk preferences. Broadly speaking, those differences may be due to either nurture, nature, or some combination of the two. For instance, boys are pushed to take risks when participating in risky or competitive sports while girls are often encouraged to remain cautious. Thus, the riskier choices made by males could be due to the nurturing received from parents or peers. Likewise, the disinclination of women to take risks could be the result of parental or peer pressure not to do so.

In recent research (Booth and Nolen 2012), we present a recent experimental study exploring why girls and boys might have different risk preferences. Using adolescent subjects from two distinct environments or ‘cultures’, we examine the effect on risk preferences of two types of environmental influences – randomly assigned experimental peer-groups and educational environment (single-sex or coeducational). The experimental subjects were UK students in years 10 and 11 who were attending either single-sex or coeducational state-funded high schools. We find that the gender composition of the experimental group, as well as the gender mix of the school the student attended, affected decisions on whether or not to enter a real-stakes lottery. But our experiment was conducted at one point in time, and did not track changes over time.


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