Gender Differences in Risk Attitudes: Nature or Nurture?

Recent work in experimental economics has found that under-representation of women in higher-paying jobs may be due to some extent to gender differences in risk aversion, feedback preferences or fondness for competition. To test why women and men have different preferences or risk attitudes, two recent IZA Discussion Papers by IZA Fellow Alison Booth (Australian National University and University of Essex) and Patrick Nolen (University of Essex) examine the effect of single-sex schooling on the risk attitudes of girls. They find that co-ed girls differ more strongly from boys in their attitudes toward risk and competition than girls from single-sex schools. Thus, observed gender differences in behavior under uncertainty might reflect social learning rather than inherent gender traits.
It is well-known that women are under-represented in high-paying jobs and in high-level occupations. Recent work in experimental economics has examined to what degree this under-representation may be due to innate differences between men and women. For example, gender differences in risk aversion, feedback preferences or fondness for competition may help explain some of the observed gender disparities. If the majority of remuneration in high-paying jobs is tied to bonuses based on a company's performance, then, if men are less risk averse than women, women may choose not to take high-paying jobs because of the uncertainty. Differences in risk attitudes may even affect individual choices about seeking performance feedback or entering a competitive environment.

Understanding the extent to which risk attitudes are innate or shaped by environment is important for policy. If risk attitudes are innate, under-representation of women in certain areas may be solved only by changing the way in which remuneration is rewarded. However, if risk attitudes are primarily shaped by the environment, changing the educational or training context could help address under-representation. Thus the policy prescription for dealing with under-representation of women in high-paying jobs will depend upon whether the reason for the absence is innate to one's gender.

Why women and men might have different preferences or risk attitudes has been discussed but not tested by economists. Broadly speaking, those differences may be due to either nurture, nature or some combination of the two. For example, boys are pushed to take risks when participating in competitive sports and girls are often encouraged to remain cautious. Thus, the riskier choices made by males could be due to the nurturing received from parents or peers. Likewise the disinclination of women to take risks could be the result of parental or peer pressure not to do so.

First study on school-age children

Most experimental literature on competitive behavior has been conducted with college-age men and women attending coeducational universities. And yet the education literature shows that the academic achievement of girls and boys responds differentially to coeducation, with boys typically performing better and girls worse than in single-sex environments. Moreover, psychologists argue that the gendered aspect of individuals' behavior is brought into play by the gender of others with whom they interact. In IZA DP No. 4026, Booth and Nolen sample a different subject pool to that normally used in the literature to investigate the role that nurturing might play in shaping one particularly important facet underlying competitive behavior - risk attitudes.

In IZA DP No. 4027, the same authors investigate how choices between piece-rates and tournaments are affected by single-sex schooling. They use students in the UK from years 10 and 11 who are attending either single-sex or coeducational schools. They examine the effect of two potential types of nurturing on risk attitudes - educational environment and randomly assigned experimental peer-groups. The first represents longer-run nurturing experiences, while the last - the experimental group - captures short-run environmental effects. Finally, they compare the results of the experiment with survey information - stated attitudes to risk obtained from a post-experiment questionnaire - to examine if reported and observed levels of risk aversion differ.

Social learning shapes gender differences

The main results can be summarized as follows. Women and men may differ in their propensity to choose a risky outcome because of innate preferences or because their innate preferences are modified by pressure to conform to gender-stereotypes. Single-sex environments are likely to modify students' risk-taking preferences in economically important ways. To test this, the controlled experiment gave subjects an opportunity to choose a risky outcome - a real-stakes gamble with a higher expected monetary value than the alternative outcome with a certain payoff - and in which the sensitivity of observed risk choices to environmental factors could be explored. The results show that girls from single-sex schools are as likely to choose the real-stakes gamble as much as boys from either coed or single sex schools, and more likely than coed girls. Moreover, gender differences in preferences for risk-taking are sensitive to the gender mix of the experimental group, with girls being more likely to choose risky outcomes when assigned to all-girl groups. This suggests that observed gender differences in behavior under uncertainty found in previous studies might reflect social learning rather than inherent gender traits.

Although single-sex schooling can affect economically important preferences, concerned parents should not at once enroll their daughters in single-sex schools during those sensitive adolescent years. This is because there might be other advantages to coeducational secondary education, not least in terms of socializing boys and girls and preparing them for mixed-gender tertiary colleges and workplaces, that might outweigh the effects isolated in the experiments. But the analysis does serve to illustrate the importance of the school environment in affecting real economic outcomes through behavioral responses. If nurture matters, as the studies show, educational curricula could address environmental issues that would allow students to develop to their full potential without being cued or pressured to follow gender identity.
The studies are downloadable as IZA DP No. 4026 and IZA DP No. 4027