Stock Market Simulation Study: “Self-Directed” Men Win?

Article Title: Predicting Stock Market Performance: The Influence of Gender and Personality on Financial Decision Making

Publication: Journal of Individual Differences (2021)

Authors: Thomas Plieger, Thomas Grunhage, Eilish Duke, Martin Reuter

Reviewer: Sean Bogart

Examining Risk-Taking: Beyond Self-Report Studies

A large amount of research assessing investor risk-taking has shown the presence of several factors that increase the likelihood of taking investment risks. Variables such as stress, particularly depression and negative affect, have been linked to more risk-seeking behavior. Gender effects have been shown in previous research (typically, men tend toward riskier investment behavior than women). Likewise, personality traits, such as impulsivity, extroversion, and openness to experience, have been shown to predict increased risk-seeking behavior.

Most of that research relied on self-report data, where an investor shares a past choice versus a study that measures actual investing behavior. Using a lab study, researchers (Plieger, et al., 2021) examined the effects of gender and personality traits on investor risk-taking. 

Stock Market Simulation Study

For three weeks, two waves of individuals (60 participants each wave) participated in a stock market simulation and were given 10,000 virtual euros to invest. The three-week period allowed researchers to evaluate the participants’ behavioral patterns while engaging in the stock market simulation. In addition to investment behaviors, researchers asked the participants to answer questions about life stress, harm and risk avoidance/seeking, and personality style during the study.

Study Results: Gender and Personality Findings

As in previous studies, gender was the most significant predictor of risk-taking in the stock market simulation. Men took more risks with the stocks invested, invested in a narrower range of stocks overall, and were more successful by the end of the three weeks than women. On the other hand, women in the study took fewer risks and invested in a broader range of stocks, a strategy shown to be more effective than men in previous studies (and more effective from a long-term perspective). In addition to the gender difference, higher self-directedness, a personality trait that includes self-confidence and internal locus of control (the belief that an individual is responsible for life outcomes), increased the total amount of money invested. 

Implications

For Personal Finance

This lab (or controlled) study found that men are more likely to seek high-risk, high-reward investments, while women prefer to play it safe. But there’s more to investing-related success than gender differences. Personality characteristics can impact how we view investing decisions. This study found that self-directedness (that is, “owning” or taking responsibility for choices and recognizing that you have options) also predicted success. Regardless of your gender or personality, investing success depends on actual choices related to investments. Building knowledge and confidence and remaining relatively cool when markets are in flux can help any investor make better decisions.

For Financial Planners, Coaches, & Wealth Managers

While research continues to support the notion of gender-related differences in investing decision-making, it is still the case that a client’s success or failure in investing is tied to the decision itself. Personality plays an important role, too, and providing guidance to clients based solely on gender, without regard for their unique personalities or levels of investing experience may not help the client achieve their long-term goals.

Keep In Mind

This study relied on students participating in a stock market simulation, so it is important to keep the following in mind when considering the results. 

  1. The participants in this study were students. Younger adults tend toward riskier behavior as it is, so the data here could very well be inflated in comparison to older adults who will be more likely to be seeking investment advice. 
  2. The simulation was a controlled stock market “game.” The simulation involved the participants (again, students) trading based on precise information and without personal ownership of the long-term outcomes. A simulated environment is quite different from the real world, where results such as the ability to retire or to pay for significant expenses such as a college education are much more salient to the individual engaged in trading.

Citation: Plieger, T., Grünhage, T., Duke, É., & Reuter, M. (2021). Predicting stock market performance: The influence of gender and personality on financial decision making. Journal of Individual Differences, 42(2), 64–73.

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