Gender Differences in Risk Aversion: A Theory of When and Why

Abstract

It has become well-accepted that women are more risk averse than men. This research investigates when gender differences in risk aversion are likely to occur and when they are less likely to manifest. We find that gender differences in risk aversion are likely to occur in decisions under risk, where the probability of outcomes is known and objectively quantified, such as games of chance, and less likely to occur in decisions under uncertainty, where one must rely on their own internal subjective expectancies of the probabilities of outcomes – the kind of decisions that dominate our day-to-day decision-making. We propose and test the mechanism that is responsible for producing gender differences in risk aversion: one’s subjective expectancy of the outcome. In decisions under risk, when subjective expectancies are accounted for, the gender difference in risk aversion disappears; while in decisions under uncertainty, we do not observe any gender differences in risk aversion, but instead find one’s subjective expectancies of the outcome to be the only reliable predicator of valuation.