This may explain why women earn less on savings than men
It is widely acknowledged that men typically exhibit a greater inclination for embracing risks across different domains when compared to women. These variances based on gender can have substantial consequences, influencing a range of aspects including accidents, career decisions, income levels, and wages.
However, what is the reason behind women being more hesitant to take risks compared to men? A researcher from the University of Bath School of Management in Britain has explored this matter.
The research findings were released in the British Journal of Psychology.
Women Fear Income Decline
Past studies have indicated that females possess a heightened inclination to avoid risk as compared to males.
In this latest research, the scientists investigated two psychological elements: general positivity and resistance towards setbacks.
The researchers collected information from more than 13,000 individuals who took part in a survey conducted in the United Kingdom. These participants were asked about the impact that possible alterations in their household earnings would have on their overall state of happiness and satisfaction.
Men experienced less discomfort when faced with a potential decrease in their income from one year to the next in comparison to women. Women exhibited a greater sensitivity towards the negative consequences associated with a potential loss, rather than displaying enthusiasm for the potential benefits they could attain.
This was unrelated to disparities in earnings based on gender.
Nothing Beats Risk For The Thrill
Both men and women equally prioritize the idea of increasing their income.
"This affirms what previous studies have already indicated, that females possess a higher resistance to taking risks in contrast to males. The disparity in the intensity of happiness derived from gains and the anguish experienced from losses is more marked in females than in males," states Dag Jørgen Hveem in an interview with sciencenorway.no.
He holds the position of an assistant professor at the Department of Law at the University of Agder.
In addition to this, Hveem holds a part-time job at BI Norwegian Business School and has conducted studies on individuals' financial investments in savings offerings.
Associate Professor Dag Jørgen Hveem explains that males possess the monetary capacity to venture into more substantial risks. Accompanied by his statement is a photo of him from the University of Agder.
Variations in risk aversion between genders can elucidate the reasons behind women's comparatively lower likelihood of venturing into entrepreneurship, their underrepresentation in lucrative professions and top-level positions, as well as their decreased propensity to invest their wealth in stocks and financial markets compared to men.
Chris Dawson, a business economics associate professor at Bath School of Management, expressed this statement in a press release. He carried out the research.
Men Are Hopeful
The individuals were also inquired about their anticipations regarding their own financial situation in a year's time, considering aspects within their control. It has been observed that men hold remarkably higher optimism compared to women when it comes to their future prospects.
This implies that males possess a higher level of self-assurance in their capabilities in contrast to females, which might result in them being more inclined to undertake daring endeavors.
The researchers have found that because women tend to have lower levels of optimism and view potential losses with greater concern, it is only natural for them to see uncertain investments as more perilous.
More than half of the difference in risk aversion between women and men can be attributed to women's greater aversion to potential losses. Only a small percentage, specifically three percent, can be attributed to women being less optimistic about their financial outcomes compared to men.
Additionally, the scientists took into account various personality traits such as openness, neuroticism, and extraversion during their investigation. Moreover, they distinguished between male and female participants based on their self-reported biological sex.
Men Are Wealthier To Risk
Hveem highlights that there is another element that can help clarify why men exhibit more willingness to take risks compared to women. Moreover, men and women possess varying perspectives when it comes to financial investments.
This could be due to the fact that males typically possess greater wealth and slightly higher earnings, Hveem remarks.
According to him, males, as a result, possess the financial stability to engage in more substantial ventures. If an individual invests in rational monetary offerings, the act of taking risks ultimately results in greater profits and supplementary benefits over an extended period.
This only worsens the disparity in wealth between genders.
In the year 2000, Ivar P. Røeggen acquired two stock index bonds at a cost of NOK 500,000 (which is roughly equivalent to 49,000 USD).
He borrowed a set amount of money, totaling more than NOK 520,000 (equivalent to 51,000 USD), with a fixed rate of interest at 7.95%. Unfortunately, he ended up experiencing a significant loss amounting to NOK 249,000 (approximately 24,000 USD).
DNB was taken to court by the Consumer Council (Forbrukerrådet) for the benefit of Røeggen. The matter was escalated to the highest court in Norway, the Supreme Court, where the small investor emerged victorious with a unanimous decision.
The Røeggen ruling was hailed by the Consumer Council as a "devastating triumph for Norwegian individual investors." Røeggen was awarded reimbursement for his monetary setback, amounting to a little more than NOK 230,000 (equivalent to approximately 22,000 USD).
(Original: E24: Røeggen vant (Røeggen won)) Summary: Røeggen Emerged Victorious Røeggen, a distinguished individual, achieved success in a recent endeavor. This remarkable feat has been acknowledged by many, including reliable sources such as E24. Røeggen can now proudly celebrate the positive outcome of their pursuit.
Are Men More Daring?
Nevertheless, is having a high tolerance for risks always advantageous? That's subjective, as stated by Hveem. Some time ago, Norwegian financial institutions offered speculative and intricate investment assets.
Currently, these high-risk items pose far fewer concerns for individuals in Norway compared to 15 years ago. A survey conducted by Dine Penger (Your Money), a private finance magazine, in 2008 revealed that Norwegians had suffered substantial losses amounting to 1.4 billion USD due to such intricate goods. This information was recently reported by E24 in 2021. Taking out loans to fund these purchases was a prevalent practice, resulting in significant problems for those who experienced financial setbacks.
In the year 2013, Jon Petter Røeggen emerged victorious in a significant lawsuit against DNB, Norway's leading financial services conglomerate, in the highest judicial authority of the country.
Hveem points out that these high-risk products were typically purchased by males – and occasionally females – lacking adequate financial knowledge.
Hveem explains that a considerable number of these high-risk investment categories were promoted as safe investment alternatives with potential profits. However, some of them actually entailed risk and offered no substantial returns due to exorbitant expenses and a complex and unfortunate framework.
Experts generally opt for investment choices that strike a harmonious equilibrium between the level of risk involved and the anticipated returns, according to his point of view.
According to Hveem, it is essential to differentiate between prudent and calculated risk-taking in the long run versus investing in volatile and hazardous financial instruments. Engaging in the latter signifies a lack of caution and strategic decision-making, rather than adopting a methodical and sensible approach to managing risks.
Translated by Alette Bjordal Gjellesvik is the English rendering provided by Alette Bjordal Gjellesvik.
Check out the Norwegian edition of this post on forskning.no.
Dawson, C. explores the variances between genders when it comes to optimism, reluctance to loss, and perspectives towards taking risks in their paper titled "Gender disparities in positivity, aversion to losing, and approaches to risk" as published in the British Journal of Psychology in 2023. The article's DOI is 10.1111/bjop.12668.
