Gender, financial risk, and probability weights

Helga Fehr-Duda (), Manuele de Gennaro and Renate Schubert ()
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Helga Fehr-Duda: Institute of Economic Research (WIF), Swiss Federal Institute of Technology Zurich (ETH)
Renate Schubert: Institute of Economic Research (WIF), Swiss Federal Institute of Technology Zurich (ETH)

No 04/31, CER-ETH Economics working paper series from CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich

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.

Keywords: Gender Differences; Risk Aversion; Financial Decision Making; Prospect Theory (search for similar items in EconPapers)
JEL-codes: C91 C92 D81 (search for similar items in EconPapers)
Pages: 40 pages
Date: 2004-05
New Economics Papers: this item is included in nep-exp
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Citations: View citations in EconPapers (7)

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