Systematic differences in men’s and women’s attitudes toward risk are well established. A new study investigated the joint role of two prominent psychological characteristics in explaining this difference.
According to recent research from the University of Bath School of Management, women are less inclined to take chances than men because they feel the agony of potential losses more keenly than profits. The study also suggests that men are ‘significantly’ more optimistic than women, making them more willing to take risks.
The study’s findings explain sex-specific outcomes in different employment sectors and financial markets.
Researcher Dr. Chris Dawson, associate professor in business economics at the University of Bath School of Management, said, “It is widely acknowledged that men, across many domains, take more risks than women. These differences in how the sexes view risk can have significant effects.”
“For instance, differences between the sexes in risk-taking can explain why women are less likely to be entrepreneurs, are underrepresented in high-paying jobs and upper management, and are less likely to invest their wealth in equities markets than men. Despite these important implications, we still know very little about why women take fewer risks than men.”
To explain the differences, this study examined the joint function of two psychological traits, loss aversion, the belief that losses loom larger than rewards, and optimism. Previous research reveals that women are more risk-averse than men.
Dr. Dawson evaluated how changes in household income from one year to the next predict changes in psychological well-being using data from 13,575 participants in the UK British Household Panel Survey.
He discovered that while there is no difference in the psychological reactions to money gains between the sexes, men experience income losses as being less unpleasant than women.
Men were noticeably more optimistic than women when asked how they envisioned their financial situation in a year, with expectations regarding outcomes within their control.
According to the research, this optimism may be explained by men’s tendency to overestimate their talents compared to women, which has already been noted in other studies.
Women will naturally perceive a particular gamble as being riskier if they are both less secure in their talents and less hopeful about the likelihood that good outcomes will occur.
Scientists noted, “Overall, the study finds that women report a lower willingness to take risks than men, with 53 percent of this gap accounted for by the higher levels of loss aversion amongst women and a further 3 percent attributable to the lower levels of financial optimism amongst women.”