Insightology

OK, so Jeopardy! cannot possibly explain all the differences between the genders, but it helps quite a bit in understanding financial risk taking because of its unique format. Researchers studying gender differences in risk taking have known that men and women are different in several ways. For example, in general men are more willing to take risks, single women allocate less wealth to risky assets compared to single men, women have lower risk tolerance on health and retirement issues, women prefer broader insurance coverage than men, and men are more active in stock trading. But is it just gender or are there other factors mixed in with gender that influence financial risk taking? For example, would competence have an impact and how does that vary by gender? This was the issue studied by three researchers using data from the game show Jeopardy!  

The Daily Double part of Jeopardy! provides the relevant data for this research. If you haven't seen the show before or have forgotten how it works, I suggest you take a few days to watch it and bring yourself up to speed or click here for a refresher. Participants place bets on three Daily Double questions and the first two are used in this research. The proportion of the question value they bet is the measure of their risk seeking behavior. So a participant who bets $800 on a $600 question is seeking risk, while one who bets $800 on a $1000 question is risk averse. To get at competence the researchers use the proportion of correct answers from that contestant in the category where the Daily Double appears. The researchers control for the contestants' total winnings and the relative position of the Daily Double question (recall that questions closer to the top of the board are easier), to ensure that they get a clean read.

Data from 6 months worth of Jeopardy! shows were used. The results show that on average contestants bet 331% of the original value of the question and that overall there was no difference between male and female participants in the amounts they bet. (Keep in mind that there is a self-selection bias here in choosing to audition for the show, and hence this result doesn't necessarily say much about men and women in general). However differences crop up when you factor in competence. Men who see themselves as competent are much more likely to bet higher amounts than women who see themselves as competent. In other words, perceived competence makes men much more willing to take risk than women. How does this translate into financial decision making situations in the real world?            

To answer this question, the researchers conducted an experiment that involved both an investment decision and an insurance decision, clearly two decisions with almost opposing objectives. Results show that men are more sensitive to competence in decisions driven by gains (investments) and women are more sensitive to competence in decisions driven by loss prevention (insurance). That is, when men see themselves as competent they take more risk in investments, but not in insurance (they buy more insurance). In contrast, women who see themselves as more competent don't take more risk in investments, but buy less insurance.

What implications does this research have? Consumers can improve the quality of their decision making by being aware of their gender based tendencies and compensating accordingly. Companies could present their offerings to consumers in keeping with the gender and competence of the target markets.  

This research was conducted by Xin He, Jeffrey Inman and Vikas Mittal and was published in the Journal of Marketing Research in 2008. Xin He is an Assistant Professor of Marketing at the University of Central Florida, Jeffrey Inman is Albert Wesley Frey Professor of Marketing at the University of Pittsburgh and Vikas Mittal is J. Hugh Liedtke Professor of Management at Rice University.