Men in groups tend to show off, pushing each other to display a cultural norm of male daring. This can spur overconfidence and financial risk-taking in Wall Street’s male-dominated culture, new research from finance professor Francesco D’Acunto finds.
“The salience of male identity increases men’s beliefs of experiencing good outcomes in a game of chance,” D’Acunto says. “Inducing overconfidence similarly makes men take on more risk and invest more.”
D’Acunto says the effect is even stronger for older men — especially those born before 1990. He says this is “consistent with the notion that gender identity stereotypes have become less stark over the last decades.”
In a set of experiments, D’Acunto tested his subjects for risk tolerance through a gambling-based task before and after each person read about masculinity. The male subjects became substantially more risk tolerant, while their female counterparts were unchanged.
The outcome was essentially the same when D’Acunto had his subjects concentrate on concepts commonly linked to masculine identity — such as power or control.
A Bloomberg News review of D'Acunto’s work suggests that “trading firms might want to avoid a ‘bro’ culture,” and that “individual investors might want to be wary of financial media websites that promote a hyper-masculine image.”
D’Acunto says his results also provide a rationale for marketing campaigns that exploit male cues to increase the purchase of risky products by consumers.
D’Acunto says his work covers new ground by testing whether social identity explains the greater tendency for risk taking by men. “Research so far has studied the effects of biology and genetics on risk attitudes across genders,” he says.
The paper, “Identity, Overconfidence, and Investment Decisions,” drew a 2015 Cubist Systematic Strategies PhD Award for Outstanding Research from the Western Finance Association. /GM/