Gender Differences in Risk Tolerance: New Evidence From a Survey of Postgraduate Students

Gender Differences in Risk Tolerance: New Evidence From a Survey of Postgraduate Students

Júlio Lobão
Copyright: © 2022 |Pages: 19
DOI: 10.4018/978-1-7998-8609-9.ch004
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Abstract

In this chapter, the author examines the influence of gender on financial risk tolerance. The risk tolerance is assessed by the instrument developed by Grable and Lytton in a sample that includes 272 postgraduate students of the University of Porto (Portugal). The results show that males are significantly more risk-tolerant than females, even after controlling for factors such as the economic status and educational levels of the respondents' parents. The gender differences seem to be essentially driven by a higher proportion of males with high levels of risk tolerance. Moreover, belonging to a household with a high level of annual income contributes to increase the likelihood of exhibiting high levels of risk tolerance. In the total sample, the levels of risk tolerance are lower than those reported in similar studies. Overall, the author documents that there are significant gender differences in financial risk perception.
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Literature Review

Risk tolerance can be defined as the level of risk exposure with which an individual is comfortable and that reflects the individual’s willingness to accept the negative changes in the value of investment or an adverse outcome that differs from the expected one. Risk tolerance is the inverse of risk aversion, that is, a lower risk tolerance implies a higher risk aversion (Grable and Lytton, 1999; Adhikari and O’Leary, 2011; Gibson et al., 2013).

Existing empirical research on the influence of gender on risk tolerance focus on behavior in three domains: health and physical safety, strategic decision-making in a professional work context, and finance (including investment and gambling).

In general, the empirical evidence indicates that females tend to be more risk-averse than men in the fields of physical health and safety and that that seems to translate into differences in risk behaviors (Barsky et al., 1997; Pacula, 1997; Finucane et al., 2000; Harris et al., 2006; Harrant and Vaillant, 2008).

Key Terms in this Chapter

Risk Tolerance: The capacity of people to choose investment alternatives with an uncertain payoff rather than another investment alternative with a more certain but possibly lower expected payoff. The inverse of risk aversion.

Risk Aversion: The reluctance of people to choose investment alternatives with an uncertain payoff rather than another investment alternative with a more certain but possibly lower expected payoff. The inverse of risk tolerance.

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