Testosterone Linked to Risk-Taking

A new study of MBA students suggests women with higher levels of testosterone are more likely to be less risk-averse and take riskier jobs in finance.

The testosterone-fueled, high-stakes world of finance has come under the radar amid the recession. Interestingly, it’s not just men whose testosterone levels are steering the risks. In fact, testosterone levels in women seem to have a more potent effect, according to new research from Northwestern University and the University of Chicago.

It’s been well-reported that women are more risk-averse when it comes to financial decisions than men, and it’s also been well-reported that testosterone can promote risky behavior. The latest research explores how much of an effect testosterone levels have on those gender differences in financial risk-taking.

The researchers found that higher levels of testosterone were associated with a greater appetite for risk in women, but not among men. In men and women with similar levels of testosterone, the gender differences in risk aversion disappeared, according to results published on the University of Chicago’s Web site.

The researchers also found that testosterone levels are linked to career choices. Both men and women high in testosterone and low in risk aversion chose riskier careers in finance. (Overall, 36% of female MBA students in the sample chose high-risk financial careers such as investment banking or trading, compared to 57% of male students, according to the results.)

The research, published in the journal Proceedings of the National Academy of Sciences, was conducted by Paola Sapienza, associate professor at the Kellogg School of Management at Northwestern University; Luigi Zingales, Robert McCormick professor at the University of Chicago Booth School of Business; and Dario Maestripieri, professor in Comparative Human Development at the University of Chicago.

“This study has significant implications for how the effects of testosterone could impact actual risk-taking in financial markets, because many of these students will go on to become major players in the financial world,” said Zingales. “Furthermore, it could shed some light on gender differences in career choices.”

Testing Risk

To investigate the relationship between testosterone and risk aversion, the researchers measured testosterone levels in saliva samples of about 500 MBA students at the University of Chicago Booth School of Business and compared the results to a test of financial risk aversion.

To measure risk aversion, over two days in October 2006, students participated in a laboratory experiment. They played a computer game asking them to choose between a guaranteed monetary award or a risky lottery with a higher potential for payout. They were ranked at the point when they switched to a guaranteed payment.

Overall, men exhibited significantly lower risk aversion than women in the study, and also had significantly higher levels of salivary testosterone than women.

“This is the first study showing that gender differences in financial risk aversion have a biological basis, and that differences in testosterone levels between individuals can affect important aspects of economic behavior and career decisions,” said Maestripieri. “That the effects of testosterone on risk aversion are strongest for individuals with low or intermediate levels of this hormone is similar to what has been shown for the effects of testosterone on spatial cognition.”