Why Men and Women Differ in Financial Decision-Making

January 11, 2011
Shirley M. Mueller, M.D.

A soon-to-be-released study shows that women and men approach financial decision-making differently, in part because of their brain function. The data suggest that differences in financial choices between the genders may not be solely to do the disparate ways boys and girls are raised – a common explanation.

Men and women approach making financial decisions differently. That much is widely documented. For example, one study showed that if a large number of 401(k) investment fund options are offered, fewer women participate than men. (I wrote about this phenomenon in a previous post.) On the other hand, if the retirement plan’s selection of funds is small, more women tend to participate than men. This tantalizing diversity begs the question, “What is going on here? Why are the sexes different when they analyze investment options?”

The reasons behind gender divergence are just beginning to be revealed. Senior author Daniel Tranel and co-authors report that there is a hemispheric sex-related asymmetry in financial decision-making. Their article is about to be published in the journal Neuropsychologia.

Though the experiment is complex, it is worth examining. The researcher’s investigation was unique in that it involved patients with brain impairments rather than healthy study participants. The patients had amygdala and ventromedial posterior cortex (VMPC) lesions. Damage to the amygdala has been found to decrease autonomic reactions to stressful and emotional stimulus. The authors state that the injury impairs “the emotional response to learned complex, cognitive information.” It is the learning that involuntarily elicits an emotional response.

The VMPC, on the other hand, links memory and emotional systems. If it is damaged, the patient will fail certain financial tests, in part because he or she can’t recreate earlier bodily sensations that told the individual a mistake had been made. This awareness is tested by the skin conductance response, a way to measure a reaction to stress. Recognized failure of an appropriate financial choice is one way to induce a reaction, because it initiates an unconscious stress response in a normal person. This response does not occur in a VMPC-damaged patient.

The researchers tested decision-making for same-sex pairs with like lesions (amygdala or VPMC) on one side of the brain or the other. They then compared the results of the two sexes. The Iowa Gambling Test (IGT) was used, a measure of financial-decision making. The right, but not left, VPMC-damaged men showed a deficit in financial decision-making when compared to the female subjects. The reverse was true for the women.

The amygdala results were similar. In fact, it was the men with right amygdala damage that had the worse results of all on the tests. By mirror image, the women with left amygdala damage also performed extremely poorly.

What this means is that dissimilar gender financial choices may not only be due to the disparate ways boys and girls are raised, a common explanation for differences in financial decision-making. It can also be attributed to inherent brain differences, another kettle of fish entirely. (I reported on amygdala differences in a previous post.)

Though either sociological or intrinsic brain differences would be difficult or impossible to change, acknowledgement is the first step to acceptance. This can only lead to the optimization of financial choices for both sexes.