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NANCY AMMON JIANAKOPLOS and ALEXANDRA BERNASEK*
We find that single women exhibit relatively more risk aversion in financial decision making than single men. Using U.S. sample data, we examine household holdings of risky assets to determine whether there are gender differences in financial risk taking. As wealth increases, the proportion of wealth held as risky assets is estimated to increase by a smaller amount for single women than for single men. Gender differences in financial risk taking are also influenced by age, race, and number of children. Greater financial risk aversion may provide an explanation for women's lower levels of wealth compared with men's. (JEL J16, D81, GIll)
ABBREVIATION
SCF89: 1989 Survey of Consumer Finances
I. INTRODUCTION
The purpose of this paper is to investigate whether women exhibit greater financial risk aversion than men. When asked, women indicate greater risk aversion than men. For example, in the 1989 Survey of Consumer Finances (SCF89) sponsored by the Federal Reserve System, each of the 3,143 respondents was asked the following question: "Which of the statements on this (page/card) comes closest to the amount of financial risk that you (and your husband/wife) are willing to take when you save or make investments? (1) take substantial financial risk expecting to earn substantial returns, (2) take above average financial risks expecting to earn above average returns, (3) take average financial risks expecting to earn average returns, or (4) not willing to take any financial risks." Roughly 60% of the female respondents said they were not willing to accept any risk, while only 40% of the men said they were unwilling to take risks. Our investigation seeks to determine whether the greater stated risk aversion by women is confirmed in their financial decision making.
It has been well established in finance theory that more risky assets must compensate risk averse investors with higher expected returns (Huang and Litzenberger [1988]). The more risk averse investors are, the lower will be their expected returns on investments. As reported in Table I, single women surveyed in the SCF89 held 40% of their investment wealth in risky assets, compared to 46% for single men (wealth, risky and risk-free assets are defined below). This difference in the allocation of wealth between risky and...