There’s a fashionable idea going around at the moment. That if we just hired more women to work as bankers then the banking system would be less risky.
This seems logical enough: women are indeed, on average, more risk averse than men on average. So if more of the banking and trading was done by women less of the banking and trading would be of the risky kind and more would be of the less risky kind.
It asll seems like a neat and logical argument and who could argue with it? Unfortunatly, as with a lot of seemingly neat and logical arguments it’s tosh. Complete nonsense. Despite the fact that people like Michael Lewis support it:
When I first read those remarks it was not clear how much in earnest Lewis had been when he made them. Subsequently, though, I heard him speak at the London School of Economics, and he took this idea in a slightly different direction. When asked what single thing he would do to reform the markets and prevent such a catastrophe happening again, he said: “I would take steps to have 50% of women in risk positions in banks.” Pressed on this, he went on to suggest how science reveals that women in general make smarter decisions regarding investment than men, that when it comes to money, women in couples are demonstrably better at evaluating risk than their partners, and single women much better still.
For the fact is that while women are more risk averse than men, it’s the mingling of the sexes which increases risk taking.
This paper investigates whether exposure to the opposite sex induces greater risk-taking in both males and females. Experimental subjects evaluated a series of hypothetical monetary gambles before and after viewing pictures of opposite sex faces; control subjects viewed pictures of cars. Both males and females viewing opposite sex photos displayed a significant increase in risk tolerance, whereas the control subjects exhibited no significant change. Surprisingly, the attractiveness of the photo had no effect; subjects viewing photographs of attractive opposite sex persons displayed similar results as those viewing photographs of unattractive people.
Men take even more risks when there are women around, women take more when men are.
This shouldn’t be all that surprising in a species which uses sexual reproduction. Risk taking is part of status seeking and status seeking is all about sex, getting access to it. Boys will indeed be boys but that is as nothing to the amount of showing off they’ll do when there are girls around.
We might note that banking did indeed become riskier in hte last 30 years. Women entered banking in large numbers in the last 30 years. Yes, that’s just a correlation but if the results of that Federal Reserve paper above are true, we’ve also got causation there.
Which means that, in order to reduce risk taking in the financial markets we don’t in fact want to just hire more women. We want, in fact, to have a single sex banking environment. Doesn’t matter which one: either will be less risky than the current mixed one.