Tag Archives: risk aversion

Genes and Neurotransmitters Influence Investment Risk-Taking: Implications for Taking Career Risks?

Camelia Kuhnen

Camelia Kuhnen

Brian Knutson

Brian Knutson

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.

Gregory Samanez-Larkin

Gregory Samanez-Larkin

“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In unpublished research, Kuhnen found that short-allele carriers showed increased anxiety before making a decision in a trial-and-error risk discovery task, but reacted no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.

Joan Chiao

Joan Chiao

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?

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Women Hedge Fund Managers Outperform Male Counterparts

Meredith Jones

Meredith Jones

Meredith Jones of Rothstein Kass, reported  that female hedge fund managers significantly outperform their male counterparts in Women in Alternative Investments: Building Momentum in 2013 and Beyond .
In the third quarter of 2012, women scored a net return of 8.95% compared to a 2.69% net return overall on the HFRX Global Hedge Fund Index.

Given women’s superior contribution to profitability, they would seem qualified for leadership roles in organizations seeking to maximize financial returns.
However, women hold fewer than 20% of top jobs in “alternate investment” organizations, according to 366 senior women in hedge funds, private equity, and venture capital.

Respondents attribute this low representation of women in executive roles to:

  • Low interest in remaining in this “alternate investment” sector due to limited opportunities for work-life balance.
    More than 18% of respondents said they wanted to work part-time or flex-time.
  • Few positions available for skilled women to establish a strong performance record.

Similar issues were discussed in Women’s Post-Business School Work-Life Issues .

Jones of Rothstein Kass suggested that some of women’s effectiveness is based on their greater patience and risk-averseness so they are “…potentially better able to escape market downturns and volatility.”

She continued, “…if women do in fact have a different, more risk-averse investing profile, then at least theoretically, their returns, particularly in difficult markets, should be higher than those of their male counterparts.”  

Kelly Easterling

Kelly Easterling

Kelly Easterling and Camille Asaro, also of Rothstein Kass, contributed to the report, which found women’s assessment of their most important professional assets:

  • Professional networks
  • Strong personal and support networks
  • Strategic career planning
  • Willingness to take considered risks
Jean Brittingham

Jean Brittingham

Jean Brittingham of The Smart Girls Way posited additional correlates of women’s effective financial performance:

  • Systems-thinking skills
  • Seeking balance between work and life
  • Caring more about solutions than who gets credit
  • Strong collaboration competencies
  • Persistence when “passionate about something”
Camille Asaro

Camille Asaro

The Rothstein Kass report noted that some U.S. states have mandates for diversity in their asset management firms, and observed an increase in state public pension plans with stated or implied preference for women-owned investment managers.

-*In which industries have you observed women delivering equal or better results than male counterparts?

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Twitter:  @kathrynwelds
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Blog: – Kathryn Welds | Curated Research and Commentary 
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©Kathryn Welds