Gender and Risk Aversion in Finance: Evidence from a Natural Experiment

Abstract

The theoretical literature on risk aversion and Expected Utility Theory is extensive, however, the analysis of this behaviour with natural experiments is comparatively small. In this dissertation, we utilize data of 120 episodes of the Portuguese version of the TV game show The Price is Right, namely from The Wheel game, to explore risk aversion as well as the impact of gender in decision-making. The Wheel game has straightforward rules and huge expected payoffs, all contestants have access to the same information and distributions of uncertainty, which makes it a unique field laboratory to conduct an experimental test of rational decision theory. The objective is to infer the risk aversion levels of decision-makers from their choice to turn the wheel and the influence of gender in risk attitudes. There is a widespread view that women are more risk-averse than men. However, in spite of the small sample size, we were not able to reject the null hypothesis that women and men have the same level of risk aversion. Even so, we obtained more cases of risk-averse women than risk-averse men. The generalization of the view that corporate decisions, such as financing, investment, and merger and acquisitions made by women are significantly different from those made by men have severe implications for management and can explain the underrepresentation of women in leading management positions. This may justify diversity measures implemented on corporate boards to promote gender neutrality in leadership positions. We found evidence of gender neutrality in risk taking, which is an important reply to persisting stereotypes in the contemporary world. Thus, when organizations decide to allocate promotions or high-risk assignments, they need to control the impulse to create beliefs about women's aversion to risk-taking. In addition, there is evidence that women make more thoughtful decisions, which may counterbalance men's aggressive decision-making.