Risk-Aversion and Chess

chess 1

I mentioned this the other day, but I think mainstream discussion should take more seriously the idea that the male-dominated nature of Wall Street is a source of dysfunction. My reason for believing that is that there’s a long and increasingly extensive scientific literature documenting the fact that women are, on average, significantly more risk-averse and less prone to over-confidence than men.

Thus via Tyler Cowen, another entrant into the genre, “Strategic Behavior across Gender: A Comparison of Female and Male Expert Chess Players” by Crister Gerdes and Patrik Gränsmark of Stockholm University:

This paper aims to measure differences in risk behavior among expert chess players. The study employs a panel data set on international chess with 1.4 million games recorded over a period of 11 years. The structure of the data set allows us to use individual fixed-effect estimations to control for aspects such as innate ability as well as other characteristics of the players. Most notably, the data contains an objective measure of individual playing strength, the so-called Elo rating. In line with previous research, we find that women are more risk-averse than men. A novel finding is that males choose more aggressive strategies when playing against female opponents even though such strategies reduce their winning probability.

At a minimum, given how central risk-assessment is to the field of finance, and how frequently confirmed this general finding is, I think there ought to be more discussion. It’s easy to explain why all the best basketball players are members of the taller and stronger gender. And you can easily see why most firefighters would come from the more risk-friendly gender. But banking? The issue has been studied with regard to amateur stock market investing and it finds (PDF) that women are, on average, more risk-averse and less overconfident and get better returns. Male investors have more of the casino mentality.