Camelia Kuhnen, then of Stanford with her Stanford colleague Brian Knutson and Vanderbilt’s Gregory Samanez-Larkin posit a small but meaningful genetic basis to risk-averse financial investing, providing a biological basis for findings that women hedge fund managers outperformed male counterparts.
Volunteers with two short serotonin transporter genes (5-HTTLPR) reported that they tend to worry, and this pattern was associated with chosing less risky investment choices.
“Short allele carriers” also showed higher levels of the personality trait “neuroticism,” but no significant difference in cognitive skills, education, or financial status.
Kuhnen estimates that less than 30 percent of variance in risk-taking is attributable to short 5-HTTLPR, and the remaining difference is derived from experience, culture, education, and social environment.
Kuhnen and Knutson reported the neural basis of financial risk taking using event-related fMRI.
They observed that the nucleus accumbens was activated before volunteers made risky choices and made risk-seeking mistakes.
In contrast, they found that the anterior insula was activated before risk-free choices and risk-aversion mistakes.
They proposed that different neural circuits are associated with differing emotions as volunteers anticipate gain or loss associated with financial choices.
This emotional activation “signature” can lead to specific investment choices, favoring or avoiding risk, and may lead to investing mistakes.
In unpublished research, Kuhnen found that short-allele carriers showed increased anxiety before making a decision in a trial-and-error risk discovery task, but reacted no differently than long-allele carriers when they observed a negative outcome.
She noted that volunteers differ in how they anticipate and react to a potential decision before they make it rather that in their reactions to actual outcomes of investment decisions.
Kuhnen, now at Northwestern collaborated with Northwestern colleague Joan Chiao to investigate the impact of both the 5-HTTLPR gene and the DRD4, gene, which regulates dopamine transmission.
These genes and their related neurotransmitters have been linked to emotional behavior, anxiety and addiction.
Their research replicated Kuhnen’s earlier finding that individuals with two short 5-HTTLPR alleles take 28% less risk than people with other combinations, and they demonstrated that the double DRD4 7 allele carriers took 25% more risk than people with other combinations.
They conclude that serotonin is associated with risk-averse investment choices, whereas dopamine is associated with riskier choices.
Kuhnen and Chiao argue that risky investment behavior shares commonalities with other risky behaviors like drug use, gambling, unsafe sex, dangerous physical and social pursuits, and more.
-*How do you determine the right amount of risk to undertake in career development and financial investing?
- Women Hedge Fund Managers Outperform Male Counterparts
- Large-Cap Companies with Women Board Members Outperformed Peers
- Beware of Seeking, Acting on Advice When Anxious, Sad
Blog: – Kathryn Welds | Curated Research and Commentary
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