Could Women Have Prevented a Financial Crisis?

The economist Anne Sibert hypothesizes that gender inequality in the finance industry is partly to blame for the financial crisis. She points to evidence that men are less risk-averse in financial decision-making, more overconfident, and perhaps susceptible to testosterone-fueled feedback loops in asset bubbles. She concludes, “If — as the research may suggest — men are less risk-averse than women, then a work group composed primarily of men (or primarily of women) may be a particularly bad idea.” (HT: Free Exchange) [%comments]

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  1. Andreas says:

    She has a point, but for different reasons. Men tend to diss each other by comparing accomplishments, like, I did that 300 billion deal just yesterday, and you only scored 270! ha-ha!
    Women, on the other hand, tend to diss each other more eloquently and on a more personal level, targeting personal integrity and social competence.
    The crisis, as made by women, woud most probably be a social instead of a financial crisis.

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  2. a_c says:

    Imagine the reaction if this argument had pointed the other way.

    Since one of two possible hypotheses is stifled by political correctness, research in this area is meaningless – just like a steering wheel that only turns in one direction.

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  3. Christopher Smith says:

    Seems like Ms. Sibert is overlooking the common factor, which is the risk tolerance itself. I suspect that the women who *are* in high-level decision-making positions are just the ones who are willing to take large risks, which of course mostly pay off during the boom times. In this case, the male predominance is probably a reflection of who’s more risk-tolerant; specifically including more women would tend to draw the risk-tolerant as well, making the exchange a wash.

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  4. Eric says:

    Wow, talk about leaping to conclusions. The most recent meltdown would not have been averted by having more risk-averse investors since the way the bonds had been sliced and diced was designed specifically to shield the banks from risk ( of course the models turned out to be wrong in some situations ). Everyone in the chain thought they were getting the good stuff and passing the risk along to the next person.

    Also if risk = profit, the risk-averse would have been shut out of the market pretty quickly.

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  5. Gary Arndt says:

    There is a well known correlation between risk and reward. If women are more risk-adverse, would that explain why they are less represented in higher levels of business?

    It seems if you want to make a blanket claim about a whole sex, you have to take the good with the bad implications of the claim.

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  6. econobiker says:

    This sounds about right but how to inject sanity within the hiring process since they will be looking for “go getters”?

    “testosterone-fueled feedback loops in asset bubbles”

    As a correlation from Liar’s Poker by Michael Lewis that defined: Big Swinging Dick — A big-time trader or salesman. (“If he could make millions of dollars come out of those phones, he became that most revered of all species: a Big Swinging Dick.” (p.52) The opposite of this term is Geek, used to describe a just-hired trainee.

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  7. Illuminatus@ says:

    It is a lovely feminist (mis) conception. Unfortunately this hypothesis has just been tested large scale in Sweden, at the Stockholm School of Economics, the result:

    No difference what so ever in levels of risk taking?

    Sex hormones do not affect economic behavior

    4/7/2009
    A new study published in the April 6 advanced online issue of the Proceedings of the National Academy of Sciences (PNAS), shows that neither testosterone nor estrogen had any effect on financial risk taking.

    Neither had it no effect on other “economic behavior” (altruism, fairness concerns or trust).

    It is well established that women are more reluctant to take financial risks than men are; women for instance are less prone to invest their retirement savings in the stock market. It has been argued that these differences are due to sex hormones. Particularly, testosterone has been thought to increase risk taking and estrogen has been thought to decrease risk taking.

    To test the hypothesis that sex hormones affect economic behavior a team of researchers at the Stockholm School of Economics and Karolinska Institutet conducted a double-blind randomised clinical trial. In the study women in the ages 50-65 years were randomly allocated to treatment with, testosterone, estrogen, or placebo. After 4 weeks of treatment, the women participated in a series of economic experiments to measure financial risk taking, altruism, fairness concerns, and trust. But no difference in behavior between the groups was discovered.

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  8. meech says:

    At the root of the problem are advisers who preach “investment for the long-term” while being compensated in the short-term via bonuses.

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