NARSEE MONJEE INSTITUTE OF MANAGEMENT STUDIES

SCHOOL OF BUSINESS MANAGEMENT

Behavioral Finance

Group Project
Men v/s Women and vulnerability to poor Investment decisions
FTMBA, Trimester 5, 2021-22

Submitted To Faculty: Prof. Mayank Joshipura

Submitted By: Group 10- Div B – 2nd Year

Team Member Roll No

Mohit Agarwal D006

Abhay Kumar Singh D016

Naman Wadhwa D010

Narether MS D011

Pranjal Verma D042

Susmita Saha G019

Table of Contents Page No

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 Abstract 3

Introduction 3

Behavioral Biases 4

Overconfidence 4

Gender Differences in Biases 5

Gender differences in Risk Aversion 5

and Over Confidence

Literature Review 6

Examples and practical application 7

Inferences 9

References 11

Abstract:

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The academic paper examines whether variations between men and women in
terms of gender have an impact on financial decisions. In this essay, we have
examined who is more logical, more risk-averse, and overconfident, and who is
more conservative in their approach to investing. We'll concentrate on how both
genders control risk when managing an investing portfolio as well.

The empirical data and the analysis allowed us to draw certain conclusions
regarding our study. We found that men and women tended to be less risk-averse
than each other. This shows that women would manage a portfolio of investments
more safely. We can also infer that men and women both demonstrate a similar
level of confidence when making financial decisions.

Introduction:

When it comes to accepting financial risks, both genders behave differently,

according to a study on the empirical investigation of gender variations in
investment behaviour. It was shown that men are more prone to accept bigger
risks than women when making financial decisions since men are more risk averse
than women. The research also stated how the excessive risk-taking by men in this
financial market, which is controlled by men, has resulted in financial catastrophes.
The gender difference in economic well-being has grown more prominent and
pervades society as a whole as more women participate in autonomous decision-
making.

According to a separate study, behavioral economics combines the twin fields of

psychology and economics and explains how and why people make illogical or
irrational decisions when they borrow money, spend money, save money, or invest
it. Belsky & Gilovish effectively addressed this in 1999.

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Risk and return have been rationally linked to the investment process. Numerous
studies have investigated gender disparities in terms of health, finances, and risk
tolerance. According to a 2004 research paper by Faff, Halla, and McKenzie,
women are less risk-tolerant than men in financial matters, and they invest less of
their disposable income in lower-risk products, which have a poor return on
investment because high risk equals high return and low risk equals low return.

According to Piyatrapoom, the decision-making process is influenced by a number

of variables, including social, political, economic, and other variables. It has
become obvious over time that traditional financial models have difficulty explaining
both the returns of the entire stock market and the actions of individual investors.
The outcome of this was the development of behavioral finance, which aims to
address these problems in the present financial climate. Behavioral finance is the
study of how people process information and respond to it in order to make wise
financial decisions. Behavioral finance analyzes psychological influences on
financial decisions and their repercussions on markets. Even though most fail in
this area, behavioral finance provides sufficient rationale for such irregularities in
the investor's judgment or behavior.

Modern portfolio theory, from a classical perspective, helps to explain why people
make sensible financial decisions. After a discussion of contemporary portfolio
theory, a full explanation of risk and how it affects people's decision-making
follows. We will discuss how risk aversion and overconfidence are behavioural
traits that are expressed differently in males and girls.

Behavioral Biases:

The tendency to make decisions that are impacted by underlying presumptions is

known as bias. Behavioural finance offers a thorough understanding of economic
decisions and explains the phenomenon of how these decisions impact market
pricing and returns as well as how resources are distributed. Studies of social,
cognitive, and emotional biases in human behaviour served as the foundation for
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this discipline's research. The aim of behavioural finance is to pinpoint the
elements that influence investors to make decisions based on gut instincts rather
than rational financial reasoning. Investors' ability to analyse options based on
solid investment principles is constrained by a variety of psychological and
behavioural biases that affect how they make decisions.

Overconfidence:

Overconfidence is essentially an overestimate of the value to be created. One

might start overestimating things by being overconfident, which leads to mistakes
being made but being unaware of them at the time. Overconfident people
frequently misinterpret their own expertise and pay little consideration to others,
which increases the likelihood of receiving a poorer return. People who are
overconfident believe they are more capable and possess more talents than
others. People that are overconfident are upbeat and do their tasks fast. The main
source of overconfidence is self-attribution bias.

Gender Differences in Biases:

Since ancient times, men have been seen as having a higher status than women.
Man has always had a lot of advantages in terms of available economic resources,
political power, cerebral capacity, and physical prowess. The individual has been
endowed with power. The woman must give up her family name upon marriage. In
culture, men are regarded more highly than women. There are gender differences
in how each gender is perceived during the decision-making process. Previous
research have paid more focus to the biological factors underlying gender
differences. Psychologically speaking, men and women are distinct from one
another. Current gender disparities are also the subject of bias-related research.
Heuristics and other biases display gender disparities.

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Gender differences in Over Confidence and Risk Aversion:

People engage with a range of possibilities on a daily basis and base their
decisions on these options. Common scenarios can have some ambiguity, which
raises the stakes when decisions need to be made. The risk can't always be
eliminated. How much danger is accepted may vary depending on personal
preferences and characteristics. Risk acceptance is influenced by one factor,
namely gender. Men and women endure different levels of danger due to their
disparities in various levels and industries. The opposing circumstance, which
commonly affects investors, is overconfidence. One bias that has a significant
impact on people's intelligence, perception, and judgement is overconfidence.
Overconfident individuals may misjudge their level of skill and engage in excessive
trading, which could have negative effects. Researchers have found that the
gender is a far stronger predictor of the behavioural biases and risk aversion levels
of investors.

Literature Review:

Sundén & Surrette conducted an analysis of the association between gender and
the retirement investing preferences of those given the option to do so in 1998. The
results of the poll indicate that people's choices for how to divide the assets in their
pension account are influenced by their marital status and gender. The survey also
discovered no proof that an individual's age or degree of education affected how
they distributed their assets.

According to statistics, investors' perceptions of risk are significantly influenced by

the gender. Male investors also have a propensity to oversimplify facts and ignore
crucial areas of their knowledge. The way a person perceives danger affects how
they make decisions. This has been demonstrated in a study written by Barber and
Odean and released in 2001.

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The relationship between investors who choose an aggressive or conservative
asset allocation strategy in their pension funds was looked at by Thaler and
Benartzi in the same year. They find that more women are willing to open
retirement savings accounts with a bad diversification strategy. Additionally, it was
discovered that women were more careful than men when allocating assets in their
retirement accounts. They draw the conclusion that there are significant gender
differences in people's investment choices.

We can infer from research conducted over the years that there are sizable gender
differences in decision-making. A conflicting impression of gender in connection to
investing choice was also uncovered by one of the research. Compared to men,
women seem to tend to be less confident in their conclusions. Our study aims to
enhance this field by establishing if these disparities exist at an early stage of an
investor's growth.

Examples and practical application

Gender plays an important role in taking investment decisions. According to our

analysis of the results, depending on the circumstances, women tend to be more
cautious when making financial decisions than men.

Investment pattern

It has long been established that women are more prone than males to save
money while investing it less. When it comes to female stock market involvement,
India, the sixth-largest equities market in the world, is in the lowest quartile.
According to a report published by Mint in 2022, only 7% of women invest
independently through self-learning. Men are more likely to invest in the financial
market, which may indicate that they have greater experience making financial
judgments. Less frequently investing by women may suggest that they are less
experienced than men in making financial judgments. Most of the female
respondents preferred to invest in fixed deposits and savings accounts, followed by

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precious metals like Gold, Silver, Diamond and Platinum. The male responders,
however, show the opposite pattern. They concentrated on stock market, mutual
fund investments, real estate , futures and options.

Banking Facilities

According to the World Bank's Global Findex database, almost one out of every
two bank accounts in India is still inactive, which is twice the norm for other
emerging nations. Worse, there is a gender gap in these inactive accounts, with
43% of men and 54% of women reporting that they do not use their accounts.
According to Findex, the main barrier to using bank accounts was a lack of money.
Given that women have fewer access to economic possibilities than men, a
shortage of money is likely to be a more relevant concern for women.

Savings Pattern

Women save more aggressively than men do. In addition, compared to males,
more women are concerned with their retirement investments. When it comes to
saving for retirement, women are more aggressive than men; 60% of women save
for retirement compared to 52% of men. After COVID, there has been a change in
the savings pattern, with the priority now being on retirement and emergencies
rather than, for example, children's welfare or income and wealth.

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 Figure 1 How likely are you to gamble?

Inferences

We can infer that there is widespread

evidence that gender affects financial decisions. In this study of men and women,
we found that women approach financial decisions with more caution.

Men invest in the stock market more frequently than women, which is another
conclusion that can be drawn. Furthermore, we have found that men tend to
completely disregard the notion of a risk-free investment.

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We can infer that, in terms of risk aversion, women are typically more so than men.
This supports the notion that men take greater chances and women are less risk-
averse. In terms of overconfidence, we cannot get to the conclusion that one
gender is more overconfident than the other. We were unable to find any overt
evidence of confidence in the outcomes. However, to a certain extent, we could
see that women believed their confidence levels to be below average. Given the
results, we think that the context in which the problem is posed has a significant
impact on overconfidence.

Another result is that many investors, whether male and female, steer clear of the
financial markets. As (Chen) claimed in his study, an individual's capacity for
decision-making can be dependent on various aspects, including financial literacy,
the reason for this reluctance to make investment decisions in financial markets
may be a lack of understanding and a lack of interest.

However, some male and female respondents also prefer to invest in bonds,
mutual funds, and other types of savings accounts, highlighting the diversity of
investor types (i.e. risk averse, neutral, risk lover).

We find conflicting results for gender differences based on overconfidence. When

asked about their personal economic planning skills and English language
competency, the respondents' answers were inconsistent, but when asked about
their level of confidence in their capacity to perform well if they invested in the
stock market, the men responded with more overconfidence. According to
Hassan18, people who are more eager to take a risk tend to be overconfident. On
the basis of the answers to the overconfidence questions in this study, however,
one cannot draw one conclusion. Despite the theoretical underpinnings of other
studies that imply men overestimate their abilities, our findings only marginally
support this theory.

Males invest more frequently than females, according to the results, although the
results based on gender differences are not statistically significant.
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 How to overcome/give a favorable twist to it/avoid adverse consequences

The most important lesson to take away from this is probably how to keep
perspective. Even while it's easy to get seduced by the most current headlines,
investing is typically best done over a long period of time. You will be able to
recognise the genuine relevance of current events and take the necessary action if
you thoroughly research your assets. The same is true of gender bias, where men
are generally more overconfident in groups of people with little knowledge.
Additionally, men in the high knowledge group are fairly confident in their own
expertise, whereas women in this group are less so.

References

1. Nicholas Barberis RT. A survey of Behavioural finance. National Bureau of

Economic research. 2012;1(1):1–76.
2. Kishore, Rohit D. Theory of Behavioural Finance and its Application. New Zealand:
Twelfth Annual Pacific Rim Real Estate Society Conference; 2014. pp.1–17.
3. Chira I, Adams M, Thornton B. Behavioral Bias Within The Decision Making
Process. Journal of Business & Economics Research. 2008;6(8):11–20.
4. Sharma M, Vasakarla V. An empirical study of gender differences in risk aversion
and overconfidence in investment. Institute of Innovation in Technology and
Management. 2013;2(7):497–504.
5. Chernoff SD. Manual for living: A users guide to the meaning of life. 287 p.
6. Langer EJ. The illusion of control. Journal of personality and social psychology.
1975;32(2):311–328.
7. Tahira R Hassan,W. K. Overconfidence and loss aversion in the investment
decisions: A study of the impact of gender and age in Pakistani perspective.
Research journal of fincace and accounting. 2014;5(11):148–157.
8. Goodwin LA. Gender Differences in Automatic In-Group Bias: Why Do Women
Like. Journal of Personality and Social Psychology. 2004;87(4):494–509.

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