That Thick Glass Ceiling and the role of risk aversion, competition aversion, and cooperation

There’s a short summation of some of the most relevant economic literature on Gender Differences at VOXEU.  Strict micro theory labor models have a difficult time dealing with any form of discrimination because they are based on labor getting paid on its marginal productivity.  Any feature that doesn’t influence production doesn’t really factor neatly in to this particular view of the labor market. This area has been more ripe for study because behavioral economics is now taking into account things beyond the idea that all economic units are rational players.  Theories of rational markets and rational agents do a really bad job of explaining a lot of things including bubbles and busts.  Just like many gender-based disciplines and their studies, the focus usually is on gender specific traits and social learning.  The most germane traits to economic behavior tend to be risk aversion and attitudes towards competition.  Preferences can be modeled through functions and their shape can provide outcomes that vary from the labor market curves of yore.  Many authors find that you have to model female preferences different from male and this contributes to many aspects of what we would call success in business.

Risk taking is generally seen as important to entrepreneurship, investment, and many business undertakings.  It is the focus of a lot of behavior research, some of which can be found in magazines like the Atlanta Parent.

Only recently have economists begun to explore why women and men might have different risk preferences. Broadly speaking, those differences may be due to either nurture, nature, or some combination of the two. For instance, boys are pushed to take risks when participating in risky or competitive sports while 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.

In recent research (Booth and Nolen 2012), we present a recent experimental study exploring why girls and boys might have different risk preferences. Using adolescent subjects from two distinct environments or ‘cultures’, we examine the effect on risk preferences of two types of environmental influences – randomly assigned experimental peer-groups and educational environment (single-sex or coeducational). The experimental subjects were UK students in years 10 and 11 who were attending either single-sex or coeducational state-funded high schools. We find that the gender composition of the experimental group, as well as the gender mix of the school the student attended, affected decisions on whether or not to enter a real-stakes lottery. But our experiment was conducted at one point in time, and did not track changes over time.

Some important control studies show how women behave in same sex environments.  These studies come from those educational studies that show that many girls do better in girl-only schools because teachers tend to show preferences to boys.  The three authors of this article came up with a way to study this issue in terms of economic decisions.

In recent research (Booth and Nolen 2012), we present a recent experimental study exploring why girls and boys might have different risk preferences. Using adolescent subjects from two distinct environments or ‘cultures’, we examine the effect on risk preferences of two types of environmental influences – randomly assigned experimental peer-groups and educational environment (single-sex or coeducational). The experimental subjects were UK students in years 10 and 11 who were attending either single-sex or coeducational state-funded high schools. We find that the gender composition of the experimental group, as well as the gender mix of the school the student attended, affected decisions on whether or not to enter a real-stakes lottery. But our experiment was conducted at one point in time, and did not track changes over time.

The authors wonder if risk taking behavior evolves over time and differently depending on the school and parental environment.   Frequently, a measurement of  risk-taking behavior occurs while playing some kind of gambling game.   The authors set up a study in a co-ed business university as well as a single sex one.  They provided a gambling game to students and tested students at before the start and after the start of the academic year.   They found differences.

We found that, on average, women are significantly less likely to make risky choices than men at both dates. However, after eight weeks in the single-sex class environment – within the larger coeducational milieu – women were significantly more likely to choose the lottery than their counterparts in coeducational groups. No such result was found for men in the single-sex groups. In other words, after eight weeks, the women in the single-sex classes were no more risk averse than men. Moreover, our results were robust to a number of sensitivity checks, including controlling for cognitive and non-cognitive skills (namely IQ and personality type).

The authors argue that this is an important finding.

The findings suggest, first, that a part of the observed gender difference in behaviour under uncertainty found in previous studies might actually reflect social learning rather than inherent gender traits. Of course this is not to say that inherent gender traits do not exist. Rather it suggests that they can be modified across time by the environment in which a woman is placed. Second, the findings are also relevant to the policy debate on the impact of single-sex classes within coeducational schools or colleges on individuals’ behaviour. Whether or not this outcome carries over into other subject areas apart from economics and business remains a topic for future research.

There’s a list of their references as well as some suggestions as where these authors intend to take their research.  Here is one study that’s in one of the more prestigious economic journals. This is a rather ambitious study that looks at risk behavior, bargaining behavior, and view to competition.  I searched out some of the more interesting conclusions including their elucidation of three preferences where men and women differ.

We find that women are indeed more risk averse than men. We find that the social preferences of women are more situationally specific than those of men; women are neither more nor less socially oriented, but their social preferences are more malleable. Finally, we find that women are more averse to competition than are men

These authors look for reasons for the differences and find a variety of things in both the nurture and nature category.  I suppose the important thing is what can we do about this?  Does this mean that women will have to create more opportunities in their own businesses rather than look for success in places where the male risk profiles dominate?  I frankly wondered if this accounted for the incredible gender gap in my field of finance where risk taking and competition are rampant and well-rewarded.  (As you probably can imagine, even the most pathological risk taking generally is rewarded up to a point.)

Anyway, I found this interesting and thought I’d share it with you.