Women are risk averse.
I do a lot of work with the financial industry, and this phrase comes up again and again. But I want to rephrase it to be more accurate.
Women are risk aware.
And it has a lot to do with brain chemistry.
Colin Camerer at the California Institute of Technolgy collaborated with Baylor Medical Center, to put men and women into an fMRI to play an investment game. They noticed a difference in the responses of men and women.
In men an area called the “medial cingulate sulcus” is active. This is an area used to process potential reward, and calculate numbers. The male brains are just “doing the math” and turn off after they have made a decision.
The female brains are quite different. Areas of the brain active in processing potential reward (ventromedial prefrontal cortex and ventral striatum) and in regulating worry and error-detection (caudate nucleus) are active. The women are worrying, and thinking about the consequences.
In simplified terms, men are focused on the reward, women are focused on the reward, but also the consequences.
Why being risk aware is so valuable
Women take on risk every day. They take on risk in their investments as well. They simply tend to take on less risk, generally, than men do. And this can be a very positive thing.
Planning ahead and looking for possible problems is a very valuable skill. If you can envision what might go wrong, you can envision a way to avoid the problem or at least prepare for it.
This is one of the reasons why insurance is so popular with women. They want to be prepared for the “what ifs”, especially since those “what ifs” may feel more real to her than to him.
Women will take on risk if they can evaluate it
Women will take on risk if they have a clear understanding of what’s involved.
Because women are more risk aware, they are more likely to do their homework. If you can walk them through their options, and clearly articulate the different outcomes, they are more likely to accept risk, whether in their investment portfolio or as a part of another important decision.
Often it’s a matter of reducing risk rather than eliminating it. (Can you say child safety equipment anyone?)
Instead of looking at women as risk averse (which is often considered to be a negative), look at women as risk aware. Take advantage of their natural abilities to look ahead and avoid or prepare for problems. It might just lead to smarter decisions and better long-term outcomes.