Risk averse or a risk taker?

Men should forget studying economics and finance because psychologists have determined that their decisions come down to how much testosterone is flowing in their blood. A "new but growing field called neuroeconomics attempts to take the hard-wired science of brain biology and mix it with the softer sciences of psychology and economics to figure out why we make the financial decisions we do." Read More. With MIR technology psychologists were able to show that the same part of the brain that makes financial decisions was also active when men were shown erotic pictures. These same men were also more prone to making large financial gambles after being exposed to the erotic images. Is there a lesson to be learned from this study or is it just an article that we can all laugh at? Calculated risk taking is part of business but if certain other activities are going on risk taking can be taken too far. It is obvious that there are multiple factors in determining why people make risky decisions but we have seen recently several wealthy and powerful men pulled down because of their secret lives, such as the Governor of New York. So how can we draw a real life application to this study. If men can't keep their minds on their work, you know what I mean, they will make emotional and uneducated decisions that are too risky. So, I conclude, for men to make the best business and financial decisions they need to focus on their work and keep their minds out of the gutter. If this isn't possible then decision making should to be turned over to women because psychologist's haven't found evidence linking them to this problem.


Lily said...

Wow! This is extremely sexist. Men can be influenced by sex that is for sure, but women can too. Even though women are not influenced as much by sex there are other things that disrupt their decision making abilities. It is also unfair to conclude men should not make decisions because they enjoy sex. For instance in an article by Business Week women browse the internet much more frequently than men, at the same time men surf the internet less and make more purchases. Several assumptions could be made from this research. Women shop online entirely too much. Women are inefficient when it comes to online purchasing. Women cannot be trusted to use the internet at work because all they will do is shop. Are these assumptions correct even though there is research defending it? No. All this research really proves is men like sex and gambling. Guess what? Everyone already knows. Furthermore if research was published today about the irrationality of business women, the researchers would be chastised for life because it is socially unacceptable to attack women in the work place.

Dr. Tufte said...

Lily is harsh, but broadly, I have to agree.

This study has been getting a lot of press. The problem with it is the assumption of ceturus paribus.

What if:

1) People systematically overestimate some risks? There's considerable evidence that investors overestimate the risk of equity purchases.
2) Or, what seems more likely, that men are biased towards underestimating risks and women towards overestimating them. This would make couples more balanced, which would have evolutionary advantages.

As to the pure result itself, this coincides with a lot of other evidence that men are more volatile than women.