This paper examines gender-based differences in investment behavior, using Jeff Sommer's 2010 New York Times article as a springboard for a broader review of behavioral finance research. The paper focuses on data from Vanguard showing that men were significantly more likely than women to sell stocks at market lows during the 2008–09 financial crisis. It explores three proposed explanations for male overconfidence in investing: differential activation of the nucleus accumbens, elevated testosterone levels, and evolutionary psychology compounded by historical gender bias. The paper situates these findings within the academic literature on irrational investor behavior, sensation-seeking, and gambling propensity, ultimately concluding that Sommer's argument is well-supported by the broader scholarly record.
The paper demonstrates source synthesis: it does not simply summarize one article but builds an argument by layering multiple academic studies (Barber & Odean, Grinblatt & Keloharju, Kumar) to corroborate and extend the claims in the primary journalistic source. This technique — using secondary scholarship to test the validity of a popular-press argument — is characteristic of strong undergraduate analytical writing.
The paper opens with a framing quote and a summary of Sommer's article, then unpacks the Vanguard data and trading-frequency findings. It systematically addresses three biological and psychological explanations for male overconfidence before widening the lens to behavioral finance research on irrationality, sensation-seeking, and gambling propensity. The conclusion evaluates where Sommer's argument succeeds and where it falls short, offering a balanced critical assessment.
"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
Studies have shown that human beings make non-rational financial decisions, and that these decisions are based on a combination of overconfidence and misguided faith in largely irrelevant pieces of information. In a New York Times article on the subject, reporter Jeff Sommer discusses recent data demonstrating that men were more likely to make poor investment decisions during the economic downturn of 2008–09, and investigates possible reasons behind this increased likelihood. He concludes that it is largely the result of an overconfidence seen less often in women, and may stem from a combination of evolutionary biology and psychology.
In the article "How Men's Overconfidence Hurts Them as Investors," Sommer covers a variety of scientific research examining how sex and gender affect financial decisions. The article focuses on research showing that men are more confident in their ability to "make sense" of small-scale market fluctuations than women, leading men to make trades that ultimately result in a loss. Sommer proposes a number of different possible reasons for this discrepancy. While the article does not claim to offer a definitive explanation for men's overconfidence in investing, it does provide insight into differing investment patterns between the sexes and the underlying biological and psychological reasons for them. Sommer finds that men's overconfidence can likely be seen as the result of evolutionary pressures coupled with historical gender bias, and that the increased trading frequency exhibited by men results from differences in how certain brain regions are activated in response to particular stimuli.
The main focus of the article is data released by Vanguard, a mutual fund company. The data showed that "during the financial crisis of 2008 and 2009, men were much more likely than women to sell their shares at stock market lows. Those sales presumably meant big losses — and missing the start of the market rally that began a year ago" (Sommer, 2010). This does not apply to every man or woman, but rather, as a group, men were more likely to trade their shares of stock. Sommer notes that this finding "fits the patterns found in path-breaking research by Brad M. Barber of the University of California, Davis, and Terrance Odean, now at the University of California, Berkeley."
The Berkeley study, "Boys Will Be Boys: Gender, Overconfidence and Common Stock Investment," examined "the investing behavior of more than 35,000 households from a large discount brokerage firm." The analysis found that "all else being equal, men traded stocks nearly 50% more often than women" (Sommer, 2010). This tendency to trade more frequently automatically increases the risk of a loss, because "staying the course and minimizing costs — selling high and buying low, if you trade at all — are the classic characteristics of good long-term, buy-and-hold investors." Coupled with the severe downturn of 2008 and 2009, men's tendency to trade more frequently found them selling shares at the wrong times, thus increasing their losses beyond those caused by the overall market declines. While the tendency to trade more frequently is the proximate cause of men's greater investment losses, the reasons behind that desire to trade are more obscure.
As the title of the article suggests, Sommer argues that men's overconfidence is the reason for their more-frequent trading, and thus their greater losses during the most recent economic downturn. Sommer provides quotes from both an executive at Vanguard and Brad Barber, one of the authors of the "Boys Will Be Boys" study. According to John Ameriks, head of Vanguard Investment Counseling and Research, "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." Professor Barber supports this view, proposing that "in general, overconfident investors are going to be interpreting what's going on around them and feeling they are able to make decisions that they're really not equipped to make." Sommer then proposes three possible reasons why this overconfidence might present itself more strongly in men.
First, Sommer notes that "researchers have found that activating the nucleus accumbens — a brain region that is stimulated when you eat delicious food or look at an attractive person — can affect financial risk-taking." However, the results of this research require careful examination, because they do not necessarily show a conclusive difference in brain functioning between men and women. "When young Stanford men were shown pictures of partially clothed men and women kissing, that region of their brains was activated. And when they were then given financial tests, the men became more likely to 'make high-risk gambles'" (Sommer, 2010). Women did not respond similarly to the images, and their performance in subsequent financial tests was not affected in the same way. The researchers proposed that "it's possible [they] didn't test enough women or that they haven't found the right stimuli," suggesting that if women's nucleus accumbens could be activated by alternate means, they might exhibit the same increase in high-risk gambles seen in men. Thus, while this brain region appears to influence financial decisions, one cannot say with certainty that it only affects men; rather, it seems more likely that men and women differ in how this region is activated, but once activated, it affects the financial decisions of both sexes similarly. It may nonetheless be true that men's nucleus accumbens are activated more easily, creating an asymmetry in practice.
Second, research has shown a correlation between testosterone and risk-taking, suggesting that male overconfidence may be an evolutionary holdover. Increased testosterone may have conferred an appropriate level of confidence when most risks involved physical activity; however, when the risks are largely abstract mental calculations, that extra confidence does not bring a corresponding increase in predictive ability. In fact, that overconfidence likely causes men to ignore or intentionally dismiss information that contradicts their preferred view of the market, further distorting a decision-making process already based on questionable information.
The third possible reason Sommer suggests for men's overconfidence in investing is also rooted in human evolution, though it relates more to psychology than to biology. According to Alexandra Bernasek, an economics professor at Colorado State University, "before the dawn of history, aggressive risk-taking might have given men an advantage in finding mates […] while women might have become more risk-averse to protect their offspring" (Sommer, 2010). Bernasek also suggests that this behavioral difference was likely reinforced by gender relations throughout history, so that "enormous gender disparities in earnings, wealth, power and social status" may have encouraged contemporary men to assume themselves automatically correct, simply by virtue of their historically privileged position.
In addition, although neither the article nor Bernasek explicitly propose the idea, it is reasonable to presume that centuries of repression encouraged women to avoid risky behavior, as they would more likely receive disproportionate punishment or admonishment compared to men should that risk turn into calamity. In effect, men may be more inclined toward risk-taking because they have historically stacked the deck in their favor, making them least likely to feel the full negative effects of that risk. This is essentially the mentality that contributed to the most recent economic disaster; a majority of the banks and financial institutions directly responsible for the risks that caused the economic collapse did not ultimately face many of the negative consequences of their risk-taking.
Although the claims about men in Sommer's article alone are not completely convincing — if only because of his somewhat noncommittal conclusion that "science may eventually provide some answers" — additional research regarding investment habits and motivations shows that a number of non-rational factors affect investment choice. Examining these factors reveals that his presumptions regarding men's and women's trading habits are supported by larger trends.
Only relatively recently have the individual characteristics and traits of investors been studied in any detail. In the 1974 essay "The Individual Investor: Attributes and Attitudes," the authors note: "we should expect to be confronted with a rich body of evidence about the characteristics, attitudes, portfolio selection rules, and realized investment returns of the small investor. As it happens, however, we appear to know surprisingly little about him" (Lease, Lewellen, & Schlarbaum, 1974, p. 414). The authors' use of the male pronoun here implicitly demonstrates how little consideration had been paid to investment differences based on sex. Even as recently as 1990, the essay "Using Demographic and Lifestyle Analysis to Segment Individual Investors" notes that "while a great deal of research has been devoted to consumer expenditures, little empirical research exists concerning individual investment behavior" (Warren, Stevens, & McConkey, 1990, p. 74). This scarcity of information was likely caused by a reluctance among investors to examine their own decision-making; nobody likes finding out that their carefully considered choices are no more accurate than gut reactions, and that gut reactions likely had more influence than all their deliberate analysis.
In the last decade, however, significant strides have been made in the study of investment behavior, revealing surprising details about what goes into making stock trades. A foundational insight in this field was the realization that human beings do not always act rationally regarding financial decisions. As Brad Barber and his co-author Terrance Odean explain, "the field of modern financial economics assumes that people behave with extreme rationality, but they do not" (Barber & Odean, 1999, p. 41). Although "differences in investor literacy about financial markets" account for some of these irrational decisions, there is ample evidence to suggest that psychology and personality are as important as financial literacy or education (Dhar & Zhu, 2006, p. 726).
In a 2001 essay titled "What Makes Investors Trade?" Mark Grinblatt and Matti Keloharju examine factors that influence investors' decisions to execute certain trades. They argue that "the extraordinary degree of trading activity in financial markets represents one of the great challenges to the field of finance," because "many theoretical models in finance […] argue that there should be no trade at all," and furthermore, "empirical research […] also shows that the trades of many investors not only fail to cover transaction costs, but tend to lose money before transaction costs" (Grinblatt & Keloharju, 2001, p. 589).
This latter scenario is precisely what happened when men sold their stock at market lows during the recent economic crisis. Grinblatt and Keloharju revisited the topic in their 2009 essay "Sensation Seeking, Overconfidence, and Trading Activity." They found that after accounting "for a host of variables, including wealth, income, age, number of stocks owned, marital status, and occupation, […] overconfident investors and those investors most prone to sensation seeking trade more frequently" (Grinblatt & Keloharju, 2001, p. 459). Although sex was not one of the variables considered in their analysis, those traits that contribute to more frequent trading are precisely those identified in men in both Sommer's article and the research conducted regarding the nucleus accumbens and the effect of certain images on financial risk-taking.
An additional study from 2009, "Who Gambles in the Stock Market?", "shows that the propensity to gamble and investment decisions are correlated," meaning that the very same traits that inspire gamblers to spend money on lotteries and other low-return "investments" also influence those who trade on the stock market. This suggests that the distinction between "investing" and "betting" is nearly nonexistent (Kumar, 2009, p. 1889). Thus, the same overconfidence that makes someone believe they will win a lottery might make them certain that a particular piece of news will yield profits on a stock trade, even though "short-term financial news often amounts to little more than meaningless 'noise'" (Sommer, 2010).
That these traits appear across different areas of finance should not be surprising. As Sommer points out, "gender differences appear to extend to other financial behavior. For example, women who are C.E.O.'s and company directors tend to pay a lower premium in corporate takeovers, saving their shareholders a bundle, according to a 2008 study of mergers and acquisitions by Maurice D. Levi, Kai Li and Feng Zhang of the University of British Columbia."
The claims made by Jeff Sommer in his article "How Men's Overconfidence Hurts Them as Investors" are only partially supported within the article itself, because although the data provided by Vanguard and his inclusion of a few academic studies provide some evidence, he does not parse them in much detail, and instead tends to repeat his central claim, occasionally using a quote to restate it with slightly different wording. However, an examination of the broader academic literature on individual investment habits and the personality traits that inform them shows his argument to be sound.
The Vanguard data presented in the article further demonstrates the tendency for men to make confident financial decisions even without justification for that confidence — a tendency that has been analyzed more rigorously in studies such as those by Grinblatt and Keloharju. Sommer's article does go marginally further than other studies in proposing possible reasons behind this tendency, finding evidence for male overconfidence in the differential activation of the nucleus accumbens, increased testosterone levels, and developments in evolutionary psychology coupled with gender bias that may have encouraged risk-taking in men while promoting risk-aversion in women.
Barber, B., & Odean, T. (1999). The courage of misguided convictions. Financial Analysts Journal, 55(6), 41–55.
Lease, R., Lewellen, W., & Schlarbaum, G. (1974). The individual investor: attributes and attitudes. The Journal of Finance, 29(2), 413–433.
McConkey, C., Stevens, R., & Warren, W. (1990). Using demographic and lifestyle analysis to segment individual investors. Financial Analysts Journal, 46(2), 74–77.
Sommer, J. (2010, March 13). How men's overconfidence hurts them as investors. The New York Times, p. BU4.
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