The New York Times recently reported on research at USC suggesting that when under stress, men take more risks than women by focusing on bigger wins, even when they are costly and less likely. One experiment involved giving points for inflating digital balloons on a computer.  The trick was to pump them enough to maximum their size without popping them.  Initially men & women subjects performed about the same.  But after dunking their hands in 35 degree water for a period of time, the women on average stopped pumping sooner, going for the more guaranteed win, while the men kept pumping as much as 50% more than the women.  In another experiment – in which participants chose cards known to be less risky (in terms of size and frequency of payout) vs. more risky – the researchers found that the more stressed the men were, the more likely they were to go for the riskier payouts.

A similar study at the University of Michigan in 2007 additionally found that we are not even aware when our decision making has changed. In that experiment the subjects were told that they would have to give a talk on which they would be judged, but first they had to play a gambling game.  Both men and women initially had a harder time making good decisions in the game (being anxious about their upcoming speech).  However, the closer the women got to the stressful event, the better their decision making in the game became.  They tended to go for smaller, surer successes, unlike the stressed men, who started risking a lot for the slim chance of a big achievement.  When the researcher asked them to rate their performance in the game, the women were more likely than the men to rate themselves poorly.  The men, on the other hand, became more egocentric.

This disparity has also been detected in the boardroom. Credit Suisse examined almost 2,400 large global corporations from 2005 to 2011 — including the years directly preceding and following the financial crisis — and found that the stocks of those companies with at least one woman on their board outperformed comparable companies with all-male boards by 26%.  This was true not only during the stressful years of 2008 and 2009 but also during the boom years of 2005 through 2007.

The culprit appears to be the level of the stress hormone cortisol, according to Ruud van den Bos, a neurobiologist at Radboud University in the Netherlands. He and his colleagues found that the tendency to take more risks when under pressure is stronger in men who experience a larger spike in cortisol. In women, on the other hand, he found that a slight increase in cortisol seemed actually to improve a more risk-balanced approach to decision-making.

How does all this apply to investing? One of the biggest risks we face is making dysfunctional investment choices when under emotional stress.  It typically occurs during fearful times when the prices of our holdings are plunging, or even during euphoric times when our investments are reaching sky-high valuations.  Having an investment policy statement, or strategy, is one very good way to overcome such behavior, as I’ve written many times.  If you don’t have one, though, then when times are scary, and you’re a man, perhaps you ought to consider consulting with your wife, girlfriend, or even that woman teller at the bank before pulling the trigger on any investment decisions!