Forum for Science, Industry and Business

Sponsored by:     3M 
Search our Site:

 

Financial risk taking: Blame it on the genes

11.02.2009
Financial institutions continue to teeter on the brink of ruin. Banks are still devouring bailout money without loosening credit enough to make a difference in a recession that is sweeping the globe. And everyone keeps asking, "How in the world did so many financial titans take such huge risks with our nation's well being?"

A new Northwestern University study provides provocative insights that relate to, if not answer, that extraordinarily complex question.

The study, for the first time, links specific variants of two genes that regulate dopamine and serotonin neurotransmission to risk-taking in financial investment decisions.

Northwestern students were given real money to make a series of investments, in each trial deciding how to allocate money between a risky and a risk-free asset.

People with the short serotonin transporter gene, 5-HTTLPR (two copies of the short allele), relative to those with the long version of that polymorphism (at least one copy of the long allele), invested 28 percent less in a risky investment. Similarly, people who carry the 7-repeat allele of the DRD4 gene in the dopamine family, relative to those carrying other versions of that gene, invested about 25 percent more in a risky investment.

"Our research pinpoints, for the first time, the roles that specific variants of the serotonin transporter gene and the dopamine receptor gene, play in predicting whether people are more or less likely to take financial risks," said Camelia M. Kuhnen, assistant professor of finance, Kellogg School of Management at Northwestern. "It shows that individual variability in our genetic makeup effects economic behavior."

"Genetic Determinants of Financial Risk Taking will be published online Wednesday, Feb. 11, by the open-access journal PLoS ONE. The study's co-investigators are Kuhnen and Joan Y. Chiao, assistant professor of psychology at Northwestern.

Prior research linking the two genetic variants of 5-HTTLPR and DRD4 to, respectively, negative emotion and addiction behaviors suggested to the Northwestern researchers that those particular brain mechanisms could play a role in financial risk-taking. But until the Northwestern study, the identification of specific genes underlying financial-risk preferences remained elusive.

The study included 65 subjects (26 of which were male, and the average age was 22 years). Study participants completed 96 computer trials in an experiment designed to give them background information with which to make decisions between pairs of risky and risk-free investments. They were told the sure rate of return for the risk-free asset and the two possible rates of return for the risky asset, which were equally likely to occur. Typically, the risk-free asset return was close to 3 percent, while the two possible outcomes of the risky asset return were, for example, 20 percent and -10 percent, respectively.

Participants initially were given $15, but received additional funds for each of the 96 investment decisions. They allocated their funds between the two assets in each trial, but were not told the performance of their portfolios (how much money they were making or losing) until the end of the exercise. The entire experiment took 1.5 hours to complete, and the average pay per subject was $25.

As predicted by finance theory, participants invested significantly more money in the risky asset if its expected return was higher, the standard deviation of its return was lower or if the return of the safe asset was lower. Also the higher the amount available to participants, the more money they invested in the risky asset.

Following the investment tasks, genotyping was conducted to identify the 5-HTTLPR and DRD4 polymorphisms. Investigators collected saliva from each participant, and DNA was isolated and genotyped.

The Northwestern researchers were able to take advantage of advances in neuroscience methodology as well as emerging research on the two neurotransmitters' effects on decision-making.

"Emerging research told us, for example, that people higher in neuroticism are thought to carry the short allele of the 5-HTTLPR, a less efficient version of the serotonin transporter gene," said Chiao. "Similarly, individuals with the 7-repeat allele of DRD4, relative to those with a other variants of that neurotransmitter, are more likely to have higher novelty seeking behavior."

The Northwestern study suggests that researchers are getting closer to pinpointing specific genetic mechanisms underlying complex social and economic behavior that has been a mystery -- including drug addiction, gambling and risk-taking.

"As we sort through the devastating consequences of this financial crisis, it might be useful to note how our genetic heritage is influencing our economic behavior," said Chiao. "Think about how the excessive risks taken by just a few affected so many, from large institutions to average people."

But, Kuhnen cautions, more research is needed to further understand investor behavior, given the complex influences of nature versus nurture on financial decisions. Less than 30 percent of variation across people in risk-taking comes from genetics. The rest comes from experience and upbringing.

"Keep in mind," Kuhnen said, "that risk-taking in the marketplace may be the result of the genetic makeup of traders and investors, their past experiences in the stock market or their cultural background."

Pat Vaughan Tremmel | EurekAlert!
Further information:
http://www.northwestern.edu

More articles from Studies and Analyses:

nachricht New study: How does Europe become a leading player for software and IT services?
03.04.2017 | Fraunhofer-Institut für System- und Innovationsforschung (ISI)

nachricht Reusable carbon nanotubes could be the water filter of the future, says RIT study
30.03.2017 | Rochester Institute of Technology

All articles from Studies and Analyses >>>

The most recent press releases about innovation >>>

Die letzten 5 Focus-News des innovations-reports im Überblick:

Im Focus: Deep inside Galaxy M87

The nearby, giant radio galaxy M87 hosts a supermassive black hole (BH) and is well-known for its bright jet dominating the spectrum over ten orders of magnitude in frequency. Due to its proximity, jet prominence, and the large black hole mass, M87 is the best laboratory for investigating the formation, acceleration, and collimation of relativistic jets. A research team led by Silke Britzen from the Max Planck Institute for Radio Astronomy in Bonn, Germany, has found strong indication for turbulent processes connecting the accretion disk and the jet of that galaxy providing insights into the longstanding problem of the origin of astrophysical jets.

Supermassive black holes form some of the most enigmatic phenomena in astrophysics. Their enormous energy output is supposed to be generated by the...

Im Focus: A Quantum Low Pass for Photons

Physicists in Garching observe novel quantum effect that limits the number of emitted photons.

The probability to find a certain number of photons inside a laser pulse usually corresponds to a classical distribution of independent events, the so-called...

Im Focus: Microprocessors based on a layer of just three atoms

Microprocessors based on atomically thin materials hold the promise of the evolution of traditional processors as well as new applications in the field of flexible electronics. Now, a TU Wien research team led by Thomas Müller has made a breakthrough in this field as part of an ongoing research project.

Two-dimensional materials, or 2D materials for short, are extremely versatile, although – or often more precisely because – they are made up of just one or a...

Im Focus: Quantum-physical Model System

Computer-assisted methods aid Heidelberg physicists in reproducing experiment with ultracold atoms

Two researchers at Heidelberg University have developed a model system that enables a better understanding of the processes in a quantum-physical experiment...

Im Focus: Glacier bacteria’s contribution to carbon cycling

Glaciers might seem rather inhospitable environments. However, they are home to a diverse and vibrant microbial community. It’s becoming increasingly clear that they play a bigger role in the carbon cycle than previously thought.

A new study, now published in the journal Nature Geoscience, shows how microbial communities in melting glaciers contribute to the Earth’s carbon cycle, a...

All Focus news of the innovation-report >>>

Anzeige

Anzeige

Event News

Expert meeting “Health Business Connect” will connect international medical technology companies

20.04.2017 | Event News

Wenn der Computer das Gehirn austrickst

18.04.2017 | Event News

7th International Conference on Crystalline Silicon Photovoltaics in Freiburg on April 3-5, 2017

03.04.2017 | Event News

 
Latest News

New quantum liquid crystals may play role in future of computers

21.04.2017 | Physics and Astronomy

A promising target for kidney fibrosis

21.04.2017 | Health and Medicine

Light rays from a supernova bent by the curvature of space-time around a galaxy

21.04.2017 | Physics and Astronomy

VideoLinks
B2B-VideoLinks
More VideoLinks >>>