SAN DIEGO — People make risky decisions every single day. And while some choices are easier than others — like opting for fries instead of salad as your complimentary side dish — the decision gets complicated when money is involved. A new study suggests men are more likely to make riskier financial decisions than women. Even when they have incomplete information, men seem to interpret a potential financial opportunity more optimistically and invest more.
The new findings build on research that suggests women are more reluctant to take risks in general. One issue in studying risk behavior is that it is often defined as situations where people know the specific probabilities involved, like a 50% chance of winning a coin flip. But how do things change when the odds of coming out on top aren’t so crystal clear?
“The uncertainty we encounter in everyday life rarely includes such precise odds – usually people have to make a decision with partial or incomplete information,” says Uma Karmarkar, study author and assistant professor of marketing and innovation at the University of California San Diego’s Rady School of Management and School of Global Policy and Strategy, in a statement.. “This research finds that men and women actually show very similar responses in low-information, uncertain financial decisions. However, it also shows a key difference: as information is added, men tend to interpret it favorably, which in turn convinces them to increase the amount of money they’re willing to invest.”
The research may explain how men and women make decisions in a professional scenario. That’s especially the case when it comes to taking a risk such as applying for a leadership position or investing in a high-risk but lucrative investment.
Comparing financial risk-taking between men and women
Two experiments were performed in person and online with almost 500 participants. The experiments involved real-world investment decision-making, where people imagine how they would spend their money on certain investments.
The in-person experiment involved a game with cash payouts. People had to decide on how many tickets they were willing to pay—$10 a ticket—to play a game with a bag filled with 100 red and blue poker chips. If a person drew a red chip from the bag they would win $20. If a blue chip was drawn, they won nothing and essentially lost $10. The players had no clue how many of the colored chips were in the bag and were given little information on the colors of some of the other chips. There were also no adjustments. Each player had to decide to bet $10 or nothing at all.
“The information we added was intentionally kept ambiguous,” Karmarkar explains. “We would give them some good information, some bad information and we kept some information missing. For example, we would tell them that the bag has at least 17 red chips and at least 20 blue chips, so that information on the rest of the chips is still clearly missing, with participants having to ‘gamble’ on the probability that a red chip would be pulled from the bag.”
The results were replicated online.
Both men and women were hesitant about participating in a game with little information on how their odds would turn out. However, the researchers noticed that the more information —good or bad— given to men, the more they were likely to pay to play compared to women. With additional information, the gap in risk behavior grew bigger.
“Missing information clearly bothers women more than men in this experiment,” Karmarkar says. “As such, this research implies that men can be more easily persuaded to spend, but this is significantly related to the availability of relevant information about the situation.”
The study is published in Cognitive, Affective & Behavioral Neuroscience.