The Surprising Reason Why Men Make Stupid Financial Decisions

Source: iStock

Source: iStock

Men who see themselves as less attractive than other men may be more prone to making risky financial decisions, a study by a researcher at Sydney’s University of Technology has found.

Eugene Chan had a group of American men look at pictures of either male Abercrombie & Fitch models or average looking guys. After viewing the photos, the men were then asked to choose between a number of relatively risky and relatively safe financial options. Men who were shown the pictures of attractive men were more likely to make riskier choices, as reported in Pacific Standard. The men who rated themselves as more attractive than the models took fewer risks. A similar experiment with women (who were shown pictures of Victoria’s Secret models) revealed that they weren’t any more likely to make riskier financial decisions after looking at images of good-looking women.

In separate experiments, Chan found that men who rated their physical attractiveness relatively low when compared to the models were also more likely to make risky financial decisions. Having limited financial resources was also linked to financial risk-taking in men.

Chan theorized that men who see themselves as less attractive might be attempting to make themselves more appealing to potential partners by acquiring more money. “Greater financial risk-taking is driven by the need for men to compensate for their perceived lack of physical attractiveness, and accruing financial resources is one way to do so,” he concluded.

Source: Thinkstock

Source: Thinkstock

The less attractive men might be fighting an uphill battle when it comes to increasing their wealth, though. Other studies have shown that less attractive people (both men and women) earn less and find it harder to get hired than their better looking peers. “[I]n every [occupation] I have looked at, being better-looking helps you,” economist Daniel Hamermesh, the author of the book Beauty Pays, told the Wall Street Journal. Given the advantages that better looking people enjoy, both in terms of finding romantic partners and in their careers, it seems to make sense that less attractive men are looking for a way to close that gap.

Men are financial risk takers

Questions of handsomeness aside, a wide body of research has found that men tend to have a greater propensity for financial risk-taking than women, though the reasons for that difference aren’t completely clear. It could be that social, cultural, and economic factors, such as disparities between men’s and women’s earnings or the pressure men feel to act as financial providers, lead men to take more risks with their money. Stereotypes that women are less logical and less rational than men might also be pushing women to be more cautious, researchers at Stanford and Columbia University found.

Other studies have shown that men have more financial knowledge and greater confidence in their decisions than women. That could also lead them to take more risks, even when they aren’t as well-informed as they think they are.

“There’s been a lot of academic research suggesting that men think they know what they’re doing, even when they really don’t know what they’re doing,” John Ameriks, author of a Vanguard study that looked at the investing behavior of men and women, told the New York Times.

Source: Thinkstock

Source: Thinkstock

Biology might also play a role in men’s penchant for laying it all on the financial line. Researchers at the University of Chicago and Northwestern University found that testosterone levels appeared to influence people’s financial decisions. Among a group of 500 MBA students, men had higher levels of testosterone and were less risk-averse than women, even though both groups had a high level of financial knowledge.

Of course, insecurities about appearance aren’t the only factor that might drive men — and women — to make risky financial moves. A 2013 study published in the Journal of Consumer Research found that people who were socially isolated were more prone to favor risky financial bets than their more connected counterparts. “In the absence of social support, forlorn consumers apparently place more value on the power of money to secure what they want socially,” study author Rod Duclos said in a statement. Another study by researchers at Rice University found that participating in online communities might also encourage risky financial decision-making.

Whatever may be driving our conscious or unconscious appetite for risk, it’s clear that being willing to take some chances with money is essential to financial success. Being overly cautious — like preferring to put money in a low-interest savings account rather than investing it — means people shut themselves out from opportunities to build wealth. But being too eager to take big risks can also expose you to big losses, a mistake made by countless individual investors as well as by the financial industry as a whole. Finding the right balance between necessary risk and prudent caution is rarely easy, it seems, especially when subtle psychological factors come into play.

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