Bajtelsmit, V. L. & Bernasek, A. (1996).

Bajtelsmit, V. L. & Bernasek,
A. (1996). Why do women invest differently than men? Financial Counseling
and Planning
, 7, 1-10.

Copyright 1996 by AFCPE

Why Do Women Invest Differently Than Men?

Vickie L. Bajtelsmit,1 Colorado
State University

Alexandra Bernasek,2 Colorado
State University

Several recent studies have found that women invest their pensions
more conservatively than men (Bajtelsmit & VanDerhei, 1996; Hinz, McCarthy,
and Turner, 1996) and that women are more risk averse (Jianakoplos &
Bernasek, 1996). Although these findings have serious implications for
the well-being of women in retirement, the reasons for observed gender
differences are less well-defined. This paper surveys the existing literature
regarding gender differences in investment and considers the policy implications
of these differences. The authors provide a summary and organization of
the explanations for gender differences that have been offered in a variety
of fields, including economics, sociology, education and gender studies.

KEY WORDS: gender differences, individual investors, investment,
pensions, risk aversion


An increasing number of financial studies conclude that women invest
their asset portfolios more conservatively than their male counterpartsa,
a finding that is generally consistent with the “common wisdom” of financial
services providers. Although there is a large body of literature on other
types of gender differences in pensionsb, examination of differences
in investment behavior is a relatively new avenue for research. The existence
of gender differences raises important questions for public policy, particularly
in light of the recent trend toward self-directed pension accounts and
the proposals for partial privatization of Social Security. Although there
are obvious implications for the overall financial well-being of women
in retirement, interventions can be more effectively designed with better
understanding of the underlying causes of observed investment patterns.


All other things equal, a conservative investment strategy results in
less retirement income on average than a more aggressive strategy. Consumption
in retirement is likely to be even lower when, in reality, all things are
not equal between women and men. Womens greater longevity implies that,
even with the same investment strategy and pension accumulation, retirement
wealth must support a longer period of retirement. Women have lower lifetime
earnings, lower earnings growth, lower wealth, and lower pension coverage
and participation rates. Although statistics show much improvement in these
areas in the last several decades (Congressional Budget Office, 1993),
the continued high poverty rate among older women is of great concern to
policy-makers (House Select Committee on Aging, 1992).


The existence of gender differences in investing and risk-taking is
fairly well established by recent studies. However, assuming that this
is a cause for concern, appropriate policy interventions can be more effectively
designed with better understanding of the fundamental causes for differences.
Identifying the causes is a more difficult task since it is generally only
possible to observe the outcomes of decisions as opposed to the decision-making
processes themselves. This issue is important not only to private and social
pension policy makers, but also to plan sponsors and professionals who
provide investment information to clients.


This article surveys what is known and what is still unknown regarding
gender differences in investing. The following section critically summarizes
the existing empirical work on gender differences in risk-taking behavior,
including a comparison of datasets studied, methodologies employed, and
conclusions made. The implications of these conclusions for individuals
and society at large are explored in the third section. The major contribution
of this article is a summary and organization of the alternative explanations
for gender differences that have been offered in a variety of fields, including
economics, education, sociology, and gender studies. Empirical and theoretical
support is provided for the hypothesis that observed investment and risk-taking
differences are ultimately the result of discrimination and/or differences
in individual preferences. The final section provides a summary and recommendations
for further research.


Evidence of Gender Differences in Investing

One of the difficulties encountered in examining gender differences
in investment is the scarcity of gender-specific and comparable data with
the necessary control variables. The data typically collected by plan sponsors
are limited to plan specific information such as allocation percentages,
account balances, and loans. Although the Pension and Welfare Benefits
Administration of the Department of Labor collects and disseminates information
on pension plans, these data are limited to aggregate plan information,
most notably from the IRS Form 5500 annual report.


Ideally, a study of this issue requires detailed demographic information
for each individual in the sample, information on non-pension income and
wealth, social security eligibility, and pension asset allocation information.
Furthermore, the optimal data set would be constructed to be representative
of the population so that more general conclusions can be drawn. To date,
there is no publicly available data set that meets these criteria, although
there have been many private and government sponsored surveys aimed at
better understanding individual financial and retirement decision-makingc.
In each case, survey designers had particular research issues in mind or
were influenced by their biases in the questions they askedd.
In particular, most surveys do not include any information on who makes
financial decisions for the householde. Thus, in each study
discussed in this section, there are missing explanatory variables. Since
studies using limited sample populations or small experiments are not necessarily
robust to the whole population, these are considered separately in the
following discussion. It is interesting to note that this issue has only
come to the attention of researchers in the last two years, possibly due
to concerns related to the increased number of self-directed pensions.


Studies Using Large Datasets

Thrift Savings Plan A recent study by Hinz, McCarthy, and Turner
(1996) uses 1990 survey data for a subsample of 498 participants in the
Thrift Savings Plan (TSP), the defined contribution plan for Federal Government
Workers, to test for gender effects in allocation. By matching demographic
information from the survey with government administrative records, the
researchers are able to control for age, income, marital status, length
of time in the plan, and gender. Variables that are missing in the TSP
data are information on household wealth (all other investments) and decision-making.
Using logit analysis, they show that men are significantly more likely
to hold risky assets and that the percentage of pension wealth that is
invested in these asset categories is higher for males.


Surveys of Consumer Finances Where the TSP data has better pension
information and less information on other wealth, the Survey of Consumer
Finances (SCF), sponsored by the Federal Reserve System, has a wealth of
information about household finances but very limited detail regarding
pension allocation. A benefit of using this survey data, however, is that
the sampling procedures used in collecting the data make it possible to
weight the data to be representative of the US population.


Jianakoplos and Bernasek (1996) use the SCF 1989 data to construct a
measure of relative risk aversion under the theoretical framework developed
by Friend and Blume (1975). The holdings of risky assets as a percentage
of total assets are regressed on the natural log of wealth and other explanatory
variables. The coefficient on the wealth variable thus provides a measure
of relative risk aversion. Although previous studies had attempted to measure
risk aversion in this way, this study is the first to examine the significance
of gender differencesf. Examination of the equation for different
categories of the sample shows that single women are relatively more risk
averse in their asset holdings than single men or married couples.


In the Jianakoplos and Bernasek (1996) study, participants self-reported
investment risk tolerance provides evidence that women also perceive
themselves to be less inclined to risk taking. When asked to choose between
four statements regarding their risk-return tradeoff, 63% of the single
women and 57% of the married women report that they are not willing to
accept any financial risk at all (compared to 43% of single men and 41%
of married men in the sample).


The SCF survey includes information on each of the respondents three
largest pensions. Although pension balance information is provided, allocation
information for defined contribution plans is more limited. For each pension,
respondents were asked to indicate whether they allocated their pension
to (1) mostly stocks, (2) mostly interest bearing investments, or (3) mixed.
Bajtelsmit, Bernasek, and Jianakoplos (1996) extend the Jianakoplos and
Bernasek (1996) results by considering the factors that influence the percentage
of household wealth invested in risky pension assets. For participants
in the 1989 SCF who had defined contribution plans and wealth in excess
of $1000, they find that women are relatively more risk averse than men
and that womens percentage wealth allocations to risky pensions decrease
with wealth (increasing relative risk aversion). The conclusions of both
studies are limited by the fact that the survey does not indicate whether
the respondent or their employer had allocation decision-making authority
for their account. Although self-directed plans are increasingly common,
there are still many defined contribution plans for which participants
do not make allocation decisions. Lastly, as in most studies, the household
decision-maker is not identified.


Private Plans Bajtelsmit and VanDerhei (1996) find significant
gender differences in investment of pension assets based on plan allocation
data provided by a large plan sponsor. Their data set consists of 1993
plan-level data on 20,000 management-level employees for a single US firm.
The pension plan participants are required to self-allocate their pension
contribution and are given five investment alternatives: employer stock,
a diversified equity portfolio, a government bond portfolio, a guaranteed
interest fund (GIC), and a social choice equity fund. They find that women
are significantly more likely to allocate to the fixed income alternatives
and significantly less likely to invest in employer stock (arguably the
riskiest alternative due to its impact on diversification). Although the
study controls for age, income, race, and job tenure, the lack of information
on other household income, wealth, dependents, and household decision-making
limits the inferences that can be drawn from these results.


Health and Retirement Survey A relatively new survey designed
to examine issues related to health and retirement of older individuals,
the Health and Retirement Survey (HRS) includes information related to
risk-taking and pensions. The 9,495 participants ages 51-61 were asked
to make risky choices in both personal and financial contexts and also
provided pension information similar to that collected for the SCF. Based
on responses to the risk questions, Barsky, Juster, Kimball, and Shapiro
(1995) find that men are more risk tolerant. Thus far, there are no studies
using this data to examine gender differences in pension risk-taking. Furthermore,
since the survey is aimed at older individuals, any statistical analysis
of this issue would have limited applicability to the general population.


Other Studies of Risk Differences by Gender

Experimental Evidence Researchers have also attempted to investigate
risk-taking behavior by designing experiments that require participants
to make risky choices. Although several such studies have been conductedg,
few have examined gender differences in results. Brinig (1994)h
and Jianakoplos and Bernasek (1996)i conducted experiments that
did not involve any risk of loss. Brinig found limited evidence of gender
differences but did not test for significance. The Jianakoplos and Bernasek
(1996) experiment did not result in a statistically significant gender


It is clearly difficult to design experiments that mimic real-life decision-making,
particularly with respect to the possibility of loss. Furthermore, experimental
studies generally suffer from a small sample bias. The common practice
of using college students as subjects cannot be considered a random sampling
procedure. Thus, it is difficult to draw more than very limited conclusions
from these studies. However, experiments reported in the insurance literature
might provide guidance for future work in this area, since individual response
to risk of loss is the primary motivation for insurance experiments.

Smaller Surveys Several less comprehensive surveys have found
patterns related to gender and risk taking that are consistent with those
reported above. For example, Zinkhan and Karande (1991) found that female
MBA students, both American and Spanish, were significantly less likely
to take business risks than males. The instrument used for measurement
of risk-taking behavior was the Kogan and Wallach (1964) Choice Dilemmas
Questionnaire and the sample included 212 students from the University
of Houston and the Madrid School of Business. This study is particularly
interesting in that it demonstrates that gender differences persist cross-culturally.


Brokerage firms are often interested in the investment behavior of their
clients. A questionnaire sent to clients of a large brokerage firm found
that gender was the third most important determinant of investor style
(after age and income), with women being more conservative. (Lewellen,
Lease & Schlarbaum, 1977). A more recent survey by John Hancock was
intended to investigate the awareness and knowledge of plan participants
with regard to their 401(k) plan. Although not the focus of the survey,
they found there were some gender differences in responses (Yakoboski &
Silverman, 1994). Despite being more likely to have reported that they
read educational materials that lead them to believe they were investing
too conservatively, women were less likely to have altered their investments
accordingly. Similarly, a psychological study on the character of gender
differences in money handling found that males and females had different
styles. Men were more inclined to feel competent in financial matters and
to be willing to take risks to amass wealth (Prince, 1993).


Implications of Gender Differences in Investing

The results reported in the previous section provide strong evidence
that women allocate their portfolios differently than men and may differ
in their attitudes toward risk-taking. Regardless of why this is so, there
are some clear implications for the future, particularly with respect to
the financial well-being of older women. Increased popularity of self-directed
pension accounts and proposals for social security privatization should
be carefully examined in light of the differential impact that these changes
may have on the social well-being of women versus men. This section discusses
these implications as well as the implications related to the increasing
presence of women in corporate management positions.


Private Pensions: Increased Participant Investment Responsibility

The trends in private pension provisionsj show that an increasing
proportion of pension plans are of the defined contribution type. This
type of plan, as compared to a defined benefit plan, shifts investment
risk from plan sponsors to plan participants. Although pension coverage
for women has increased substantially in the last two decades, women are
still more likely to work at places of employment that do not sponsor pensions,
and when offered, they are less likely to participate.


As more plans require participants to make their own allocation decisionsk,
differences in risk-taking behavior will imply larger differences in retirement
income. If women are more likely to allocate their portfolio to low risk
investments, their pension accumulations will be lower and they will have
lower wealth at retirement. Due to generally greater longevity, this lower
wealth level will have to support a longer retirement period, widening
the income disparity between retired men and women. Alternatively, lower
wealth may require that women will need to extend their working years beyond
the normal age of retirement l.


If gender differences in risk-taking and perceptions of risk-taking
exist, there are also implications for participant education. Most plans
provide similar types of materials and information to participants, including
historical performance, projections of future performance, and projections
of replacement ratios for particular investment strategies. Larger pension
plans are now beginning to offer education on general investment principles
and financial planning for retirement. The fact that women are making more
conservative choices may be relevant to plan sponsors and providers in
their design of educational materials.


Social Security Reform Proposals

Although the financial position of women over age 65 has improved over
the last few decades, this trend may be due for a reversal. Gains have
been largely due to generous reforms of Social Security for certain cohorts
of retirees. However, recent reforms will substantially reduce the replacement
ratios that can be expected by future generationsm. Individuals
will therefore be required to shoulder a greater share of the burden for
their retirement through own-savings and private pensions. To the extent
that women have tended to rely on Social Security for the majority of their
retirement income in the past, these changes will have a greater impact
on women than on men, who have higher savings and higher pension coverage
on average.


Recent Social Security reform proposals that have gained popular support
would allow individuals to partially opt out of Social Security in favor
of private investment of a portion of their payroll tax (Wall Street
, February 20, 1996). As in the case of private pensions, more
conservative investment of this portion will result in lower accumulations.
If wealth accumulation in the individual account is not sufficient to offset
the reduction in benefit formula, the end result will not be superior to
the existing formula.


Alternatively, if women choose not to opt out, they may retire with
benefits that are lower than those of individuals who have taken advantage
of the investment option. Furthermore, if those who choose to opt out are
higher income and male, the Social Security trust fund may find itself
in worse condition than without privatizing since the redistributive nature
of the system requires the participation of higher income individuals and
those with shorter lives.


Risk-Taking Behavior and Corporate America

As more women enter the workforce, there are increasing numbers of women
in positions of authority in corporationsn. While it may be
the case that the women who breach the “glass ceiling” are atypical women,
there is still the possibility that women in positions of authority may
perceive risks and deal with risk differently than men. It has been suggested
that gender differences in decision-making and management style may be
factors that have inhibited female movement up the “corporate ladder.”
Differences in risk aversion could cause women to experience greater difficulty
in industries that reward risk-taking or measure performance against benchmarks.


Another possible implication for business is that an increased number
of women in management could result in reduced business risk-taking. The
implications of this projection are not clear although it is an issue of
sufficient importance to merit further study.


Explanations for Gender Differences in Investing

Researchers in many diverse fields have attempted to provide explanations
for observed gender differences. It is difficult to definitively answer
this question since researchers can only observe the outcomes of decisions
rather than the decision-making processes themselves. Gender differences
in investing and risk-taking can be attributed to many possible causes
but, ultimately, it can be shown that all the explanations have their root
in discrimination and/or differences in individual preferences. These factors
may influence risk aversion directly or through outcomes such as gender
differences in wealth, income and employment. Figure 1 illustrates these
effects in the form of a flow-chart. The discussion below will proceed
according to the organization of Figure 1 by first discussing the way in
which wealth, income and employment differences influence risk-taking and
then examining how these outcomes are the result of discrimination and/or
individual choice.



Gender Differences in Wealth Despite a narrowing of the gender
wealth gap over time, women still have lower levels of wealth on average
than men (U.S. Bureau of the Census, 1993). Expected utility theory establishes
that in an absolute sense (amount of money invested in risky assets) risk
aversion decreases with wealth (Huang and Litzenberger, 1988). Because
women have less wealth, it follows that they will be expected to exhibit
absolute risk aversion than men. The implication is that
women, on average, will hold a smaller dollar value of risky assets
in their investment portfolios than men. Jianakoplos and Bernasek (1996)
also find that women are relatively more risk averse than men i.e.
they will hold a smaller proportion of their portfolio in risky


Gender Differences in Income Despite a narrowing of the gender
earnings gap, women continue to earn less on average than men. In 1993,
the gender earnings ratio was 0.72 (U.S. Bureau of the Census, 1993). For
individuals over age 55, the difference is much greater. In 1991, the ratio
of female to male income for those age 55 to 64 was an astounding 0.39
and for those age 65 and over was somewhat better at 0.57 (Bureau of the
Census, 1992). Lower levels of income for women mean fewer resources available
for savings and investment.


Although there is evidence that the gender pension gap is closing more
rapidly than the earnings gap (Korczyk, 1992) lower levels of income for
women have implications for defined contribution and benefit pensions based
on income. The main implication is that they will provide women with lower
overall benefits in retirement. It is also less likely that individuals
earning lower incomes will be covered by pensions. Only 13% of workers
earning $10,000 or less are eligible for participation in pension plans
as compared to 41% with earnings between $10,000 and $20,000, and 80% for
those with earnings over $50,000 per year (Korczyk, 1992).


The trend toward defined contribution plans has worked to the advantage
of women in many wayso, but it is also possible that the greater
flexibility in these plans may result in the use of plan assets for non-pension
purposes. Lump-sum pre-retirement distributions are increasingly common,
with 10.8 million persons receiving distributions in 1990 alone, totaling
$126 billion. A study using the May 1988 Current Population Survey found
that women were 40% more likely to receive a payment than men, but the
percentage of both sexes that saved the entire distribution was nearly
the same (Fernandez, 1992). Only half of the recipients rolled over their
entire distribution into another form of savings or retirement plan (Yakoboski
and Silverman, 1994). To the extent that women have lower income and lower
wealth, it is possible that they will be more likely to access these lump
sum distributions for other needs such as college tuition or housing. Lower
income may also mean that women will be less able to take advantage of
employer matches.


It should also be noted, however, that having income does not
necessarily translate into controlling income. Although they do
not find significant gender differences between male and female primary
family financial managers in their sample of households, Hayhoe and Wilhelm
(1996) provide a discussion of this issue and recommend further research.
Zelizer (1989) finds that husbands generally control income, except at
the very lowest income levels (where control means allocating shortages
and dealing with creditors). Ferree (1990) contends that there is a need
for further research on the issue of household decision-making and that
the available survey data in the United States is flawed in that they continue
to treat households as a single decision-making unit.


Figure 1

Causal Relationships for Gender and Risk-Taking.


Gender Differences in Employment Despite inroads by
women into traditionally male occupations, the labor market continues to
be segregated occupationally by gender with women concentrated in low paying
occupations and at lower levels within occupations (Reskin and Hartmann,
1986; Reskin, 1988). Witkowski and Leicht (1995) include an excellent review
of this literature in their study of how gender roles in the family influence
labor force activity by gender and occupational segregation by gender.


Magenheim (1993) reviews several studies that imply that occupational
segregation by gender has pension effects. Female-dominated jobs are also
jobs that are the least likely to have employer-sponsored pension plans.
Occupational segregation is thus an explanation not only for lower average
female earnings but also for lower coverage rates which imply greater reliance
on own-savings for retirement income. Similarly, womens greater likelihood
of being employed in part-time and temporary occupations (Blank, 1990;
Blau & Ferber, 1987) provides an explanation for their lower average
earnings and fewer pension benefits. Workers in part-time and temporary
jobs who desire health insurance, disability insurance or life insurance
coverage must pay for it out of disposable income, thereby further reducing
resources available for savings and investment.


Since women are also more likely than men to change jobs (Light &
Ureta, 1990), they face greater job switching penalties inherent in defined
benefit annuity formulasp. In addition, as Ferguson and Blackwell
(1995) point out, a less obvious penalty is due to vesting rules. Despite
the shortening of average vesting requirements in recent years, more women
than men leave their places of employment prior to vesting in their pensions.


Causes of Wealth, Income and Employment Differences

Discrimination Gender discrimination in labor markets has been
shown to play a role in labor market outcomes for women and can explain
their lower wages (Neumark & McLennan, 1995). Women continue to face
discrimination in credit markets both for personal and business loans (Wray,
1995). The popular press has reported on the “glass ceiling” facing women
in corporate American and the “brick wall” facing women seeking business
loans (Newsweek, August 24, 1992). A bipartisan federal commission
studying discrimination in the workplace (commonly referred to as the “glass
ceiling commission”) recently released its report which concludes that
the glass ceiling exists and it is “the unseen, yet unbreachable barrier
that keeps minorities and women from rising to the upper rungs of the corporate
ladder regardless of their qualifications and achievements” (New York
, November 23, 1995). A recent Virginia Slims Opinion Poll
of womens issues shows that more women in 1995 believed that discrimination
in the workplace impedes movement into executive positions than did in
1970 (Townsend, 1996). The feedback hypothesis posits that women who experience
labor market discrimination respond with job switching, career interruption
and less investment in human capital, resulting in lower wage growth.


Anecdotally it has been reported that women receive more conservative
investment advice than men, either because they are believed to be more
risk averse or because the investment adviser believes they “should” be.
In the first case this is an example of statistical discrimination where
advice is being offered on the basis of a perception of average willingness
of women to take risks rather than on the individual’s willingness to take
risks. Although it is not clear that women are consistently being advised
into “widows and orphans”q investments, a recent Money
magazine survey of how brokers treat their customers found that brokers
treat male clients better than female clients, spending more time with
them and offering them a wider variety of higher return (and presumably
higher risk) investments (Wang, 1994).


Anecdotally, it has been reported that managers suffer from some of
the same (mis)perceptions as investment advisers. They may attempt to “protect”
women by not promoting them into positions that are regarded as more risky,
such as jobs that are paid on commission (Wall Street Journal, May
17, 1994). A 1995 Catalyst survey of female executives indicates
that more than half of the women surveyed attribute male stereotyping as
a significant factor preventing advancement of women to corporate leadership
(Townsend, 1996). This has the potential to restrict advancement opportunities,
and, to the extent that experience with risk improves ones understanding,
it may perpetuate risk averse behavior by women.


The impact of information on investment decision-making has two separate
dimensions to it. Women may differ in access to information and they may
also differ in their ability or inclination to use available information.
Handley (1994) reports that women experience exclusion from informal networks
and, as a consequence, lack of prompt access to valuable information in
the organization. It is interesting to note that in the female executive
survey discussed above nearly half of the women executives, but only 15%
of the male executives, reported exclusion from these networks to be factors
preventing the advancement of women. Most men (82%) cited lack of experience
as an important factor.


Choices The choice-based explanation for gender differences in
investing and risk-taking derives from human capital theory in economics.
Human capital theory (Becker, 1975) states that women rationally choose
to invest in less human capital (education, skills, on-the-job training)
than men, which in turn affects their employment opportunities, their incomes
and their ability to accumulate wealth. Women make different choices than
men primarily due to their greater family responsibilities. The gender
division of labor within the family, which results in women taking primary
responsibility for household work and child care, is seen alternatively
as the result of inherent biological differences or as the result of socialization.


Despite increases in womens investments in human capital, they still
invest less on average than do men (Sandell and Shapiro, 1980), and they
invest differently — much less than men in math and science related areas.
The implications of this are that women choose low-paying occupations that
require less human capital, and in turn choose to earn lower incomes (Light
and Ureta, 1995; Vella, 1994). Eccles (1994) provides an excellent review
of the literature on gender differences in math and science achievement
in her study of how gender role socialization explains womens educational
and occupational choices.


In their study of two issues related to educational opportunities for
girls and boys, Ramos and Lambating (1996) conclude that tests such as
the SAT which have penalties for wrong answers are biased in favor of greater
risk takers. Since their review of the literature indicates that boys are
more inclined to be risk takers, they argue that tests in which risk plays
a role discriminate against females. Poor test results negatively affect
girls confidence, their opportunities and desire to attend college, and
their choices of subjects to study, particularly math and science fields.
Ramos and Lambating (1996) suggest that discrimination can produce feedback
effects which in turn affect womens choices. Another study which examines
these feedback effects directly in relation to the labor market is Neumark
and McLennan (1995).


Womens responsibility for dependent care has tended to make their work
life shorter and characterized by more interruptions on average than mens.
Women are more likely to take time out of the workforce for family responsibilities
(child bearing, child care, elder care) which makes it difficult for them
to take advantage of long term investment growth in retirement savings.
Women continue to be the primary caretakers in families, responsible for
care of children and the elderly. In the
Working Care Givers Report
(1989) commissioned by the American Association of Retired Persons (AARP),
it was estimated that three out of every four employed persons who provide
care for the elderly are women. This can affect the time women have available
for jobs and it can often mean higher current expenditures and less money
available for investment.


A recent article in the New York Times reported on the increase
in investment clubs for women (New York Times, October 15, 1995).
Women are becoming more aware of the need to learn more about money. It
may be that women on average have had less inclination to collect and process
financial information and that this has affected their willingness to undertake
more risky investments. If they have had less exposure to the information
and less experience with processing it, then they may have less confidence
and less of a desire to become knowledgeable about financial matters. With
private pensions women and men are required by law to receive the same
information but there is evidence to suggest that even then women are more
conservative in their investment allocations, holding much higher proportions
of their portfolios in fixed assets than men (National Underwriter,
May 6, 1996).


Biological Determinism Versus Socialization

The continuing debate over biology versus socialization as the basis
for womens choices has a long history (Huber, 1993). The biological argument
maintains that because of womens greater biological responsibility for
reproduction, evolution has led women to be less willing to take risks
than men. LaBorde Witt (1994) explores the gendered division of labor in
care-giving and presents an extensive review of the literature on the biology/socialization


Feminist scholarship has emphasized the importance of gender as a social
construct and has been influential in making the argument that gender differences
are more important than biological differences when it comes to understanding
differences in the behavior of women and men (Nelson, 1996). The work of
Gilligan (1982) and Chodorow (1978) examining the formation of gender identity
early in life has been particularly influential in subsequent feminist
scholarship. Since most researchers agree that socialization plays at least
some role in influencing womens choices, it is not necessary to belabor
the relative influence of biology. From a policy perspective, interventions
focused on changing socialization processes can still positively impact
the well-being of women by influencing their decision-making.


Conclusions and Implications for Future Research

Investigation of gender differences in investing is a new area of research
in finance and economics. Because the research is at such an early stage,
much remains to be done. Studies to date have not produced a clear understanding
of the causes of observed gender differences and it is therefore too early
to identify appropriate policy interventions. Nevertheless, popular beliefs
regarding the causes of gender differences have motivated policy-makers
to create programs designed to improve economic outcomes for women.


If interventions are based on misconceptions regarding the cause of
the risk-taking differences, then programs may be ineffective in achieving
desired outcomes and may inefficiently allocate limited public resources.
A priority for future research will be to more thoroughly investigate the
causes of gender differences to better inform policy makers and investment


In this paper, we have delineated the alternative explanations for gender
differences in investment and risk-taking in an effort to help guide data
collection and identification of relevant variables for empirical research.
Review of the limitations of previous studies suggests that existing datasets
are inadequate for the purposes of investigating gender differences in
investing. Future academic and professional research will require more
detailed information on household financial decision-making, particularly
with respect to understanding the decision-making process. In the absence
of this information, outcomes such as gender differences in wealth will
not serve as an accurate indicator of risk preferences. Greater efforts
need to be made, particularly in the design of surveys, to acquire information
that allows researchers to distinguish between the influence of discrimination
and individual choice, as well as the determinants of choice.


a. See Hinz, McCarthy, and Turner (1996), Bajtelsmit and VanDerhei
(1996), Bajtelsmit, Bernasek, and Jianakoplos (1996), and Jianakoplos and
Bernasek (1996).

Magenheim (1993) reviews the literature on gender patterns through
1992 and does not include any studies on investing behavior.

c. For example, large data collection efforts include: the Survey
of Consumer Finances, the Survey of Income and Program Participation, the
Health and Retirement Survey.

d. For example, the Survey of Consumer Finances assumes that the
head of household is the male spouse.

e. A new privately sponsored survey of TIAA-CREF participants includes
decision-making information, although the sample is not representative
of the population and the survey has incomplete information on the household.

f. Riley and Chow (1992) used the 1984 panel of the Survey of Income
and Program Participation (SIPP) data to construct a relative risk aversion
measure, but reported results do not include any tests for significance
of differences by gender.

For example, Gertner (1993) and Metrick (1995) examine risk taking
behavior on game shows. Altaf (1993) experiments to determine whether risk
taking is context dependent and Levy (1994) examines student choices between
risky and risk-free assets.

h. The game involved drawing a winning ball from one of three jars
representing different risk-return payoffs.

i. Using the same game as Altaf (1993), the game paid $25 to the
participant who accumulated the most points. Points were obtained by choosing
to roll a die or toss a coin, each of which involved certain payoffs in
the form of points. The two alternatives had the same expected value but
different variance.

j. A review of recent trends in sponsorship, coverage, plan type
and participant decision-making is provided in Bajtelsmit and VanDerhei

k. ERISA section 403(b) exempts plan sponsors from fiduciary liability
for bad investment performance if: 1) the participants are offered a choice
of at least three alternative investment options that differ in risk and
return characteristics and 2) the participants are given information sufficient
to make an informed decision.

l. However, this may not be feasible given Fries (1991) evidence
that, although the age-span is lengthening, the age of morbidity is not
significantly different from that of earlier generations.

m. Aaron, Boswell, and Burtless (1989) project that replacement ratios
for 65 year old low income retirees in 2030 will be 51% compared to 63.8%
for retirees in 1985. For those with average income, the change is projected
to be a reduction from 40.9% replacement to 35.8% in 2030.

n. Although most estimates put womens representation in senior management
at 5% or less, women now hold 10% of the seats on Boards of Directors in
the Fortune 500 (Townsend, 1996)

o. For example, women have generally benefitted from the absence
of the implicit penalty to job switching that is imposed by defined benefit
plan formulas. The lower administrative costs of defined contribution plans
and the lower risk to employers has also made employers more likely to
offer plans where none had been offered before, resulting in higher pension
coverage ratios for women in the last decade.

p. When workers leave a job with vested DB benefits, the retirement
benefit formula is often based on years of service and final average salary.
Assuming some level of wage growth over time, a worker with identical total
years of service at several different employers will have a lower total
benefit from the multiple pension plans than a worker who has had a “career”
job at a single employer with a similar DB formula.

q. The “widows and orphans” terminology originates from the titles
of early insurance funds designed for women. It is commonly used today
to describe investments that are low risk. See, for example, a recent article
in The Economist: “Not for Widows, Orphans–or Hedge Funds: Mortgage
Backed Securities” (July 9, 1994, pp. 81-82).



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1. Vickie Bajtelsmit, Assistant Professor, Department
of Finance and Real Estate, Colorado State University, Fort Collins, CO
80523. Phone: (970) 491-0610. Fax: (970) 491-7665.

2. Alexandra Bernasek, Assistant Professor, Department
of Economics, Colorado State University, Fort Collins, CO 80523. Phone:
(970) 491-6856. E-mail: