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Men More Optimistic Than Women Claims University of Bath Study
In a recent study conducted by the University of Bath, Researcher Dr Chris Dawson, an associate professor in business economics, has provided intriguing insights into the dynamics between risk aversion and financial optimism. His research, it appears, has revealed a role of gender in shaping attitudes towards financial risk and financial optimism.
Published in the British Journal of Psychology, the study, "Gender differences in optimism, loss aversion, and attitudes toward risk," suggested that men are 'significantly' more optimistic than women. This optimism often translates into a greater propensity to undertake risks.
I was surprised because our studies don't show a clear gender difference. However, Dr Dawson's measure of optimism is expressly confined to the financial realm. The expectations concern outcomes within the individual's control. Hence, his measure of optimism is also interlinked with overconfidence, often captured concerning one's abilities.
Dr Dawson contends that these results have profound implications, perhaps unravelling sex-specific outcomes across different employment sectors and financial markets. He noted, "It is widely recognised that men, in many domains, take more risks than women. These differences in risk perception can have significant effects."
These gender differences in risk-taking, according to him, could illuminate why women are less likely to become entrepreneurs, are underrepresented in high-paying jobs and upper management, and are less likely to invest in equity markets than men.
Earlier research suggested that women are more risk-averse than men. However, Dr Dawson delves deeper and summarises research across various contexts showing men are more optimistic than women. For instance, reports have suggested that men are more optimistic about their personal future economic situation and the economy's future. Furthermore, women are more pessimistic than men about their future earnings. This gender gap in optimism and pessimism extends beyond the financial domain, with women reported to be more pessimistic about successful marriages and perceive a higher risk of traffic accidents.
Dr Dawson stated, "In my research, I aimed to unravel the reasons behind women's lower risk-taking propensity." According to his findings, when faced with risky choices, women tend to focus more on the possibility of loss and expect to experience more pain from potential losses, leading to fewer risks taken.
The research further examined the combined role of two psychological characteristics—loss aversion and financial optimism—in explaining these gender differences. Utilising data from 13,575 people from the UK British Household Panel Survey to measure loss aversion, he observed how changes in household income influenced changes in psychological well-being. The study found that men experienced less pain from income losses than women, while there was no difference in responses to income gains between the sexes.
In the context of future financial prospects, men exhibited significantly more optimism than women. This could be attributed to overconfidence about their abilities, a trait highlighted in previous research.
The conclusion is that if women are less optimistic about the probability of favourable outcomes and less confident in their abilities, they are likely to perceive a given risk as more significant.
The study found that women reported a lower willingness to take risks than men, with 53% of this gap explained by women's higher levels of loss aversion. A further 27% of the gender gap in risk-taking propensity can be attributed to men's higher levels of financial optimism.
Dr Dawson suggests that societal conditioning and gender stereotypes could contribute to these differences. Society often encourages boys to be bold and assertive, whereas girls are often encouraged to be cautious and careful.
The study does not propose that one gender's approach is better. While optimism can drive innovation and advancement, it could also result in overconfidence and reckless financial decisions. On the other hand, a more cautious approach could prevent disastrous financial decisions and potentially impede progress and growth.
These insights are useful for individuals, institutions, and policymakers. Financial advisers may need to adapt their strategies to cater to the distinct risk perceptions and levels of optimism among male and female clients. Similarly, policymakers could consider these differences while designing public policies or programs that promote gender equality in the financial and economic sectors.
In his conclusion, Dr Dawson writes, "future work should look at replicating our findings using the many other large-scale nationally representative longitudinal surveys available, such as the German Socio-Economic Panel (SOEP) or the Household, Income and Labour Dynamics Survey in Australia (HILDA), both of which measure general risk attitudes and general optimism about the future. Indeed, within SOEP risk attitudes and optimism are elicited over multiple Waves, permitting future work to also investigate whether within-person changes in optimism map onto within-person changes in risk attitudes."
In summary, the study conducted by Dr Dawson finds gender differences in financial optimism and risk-taking behaviours. It offers valuable insights that could be instrumental in tailoring individual financial strategies and informing policy decisions.
The research also underscores the need for further studies to deepen our understanding of these gender disparities and their manifestation in various cultural and societal contexts. Doing so could create an environment that recognises and addresses these gender-based differences, promoting a more balanced, equitable financial world.
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