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 The Great Unknown: Risk-Taking Behavior in Adolescents
19.01.2017 | Max-Planck-Institut für Bildungsforschung

nachricht A sudden drop in outdoor temperature increases the risk of respiratory infections
11.01.2017 | University of Gothenburg

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: Scientists spin artificial silk from whey protein

X-ray study throws light on key process for production

A Swedish-German team of researchers has cleared up a key process for the artificial production of silk. With the help of the intense X-rays from DESY's...

Im Focus: Quantum optical sensor for the first time tested in space – with a laser system from Berlin

For the first time ever, a cloud of ultra-cold atoms has been successfully created in space on board of a sounding rocket. The MAIUS mission demonstrates that quantum optical sensors can be operated even in harsh environments like space – a prerequi-site for finding answers to the most challenging questions of fundamental physics and an important innovation driver for everyday applications.

According to Albert Einstein's Equivalence Principle, all bodies are accelerated at the same rate by the Earth's gravity, regardless of their properties. This...

Im Focus: Traffic jam in empty space

New success for Konstanz physicists in studying the quantum vacuum

An important step towards a completely new experimental access to quantum physics has been made at University of Konstanz. The team of scientists headed by...

Im Focus: How gut bacteria can make us ill

HZI researchers decipher infection mechanisms of Yersinia and immune responses of the host

Yersiniae cause severe intestinal infections. Studies using Yersinia pseudotuberculosis as a model organism aim to elucidate the infection mechanisms of these...

Im Focus: Interfacial Superconductivity: Magnetic and superconducting order revealed simultaneously

Researchers from the University of Hamburg in Germany, in collaboration with colleagues from the University of Aarhus in Denmark, have synthesized a new superconducting material by growing a few layers of an antiferromagnetic transition-metal chalcogenide on a bismuth-based topological insulator, both being non-superconducting materials.

While superconductivity and magnetism are generally believed to be mutually exclusive, surprisingly, in this new material, superconducting correlations...

All Focus news of the innovation-report >>>

Anzeige

Anzeige

Event News

Sustainable Water use in Agriculture in Eastern Europe and Central Asia

19.01.2017 | Event News

12V, 48V, high-voltage – trends in E/E automotive architecture

10.01.2017 | Event News

2nd Conference on Non-Textual Information on 10 and 11 May 2017 in Hannover

09.01.2017 | Event News

 
Latest News

Breaking the optical bandwidth record of stable pulsed lasers

24.01.2017 | Physics and Astronomy

Choreographing the microRNA-target dance

24.01.2017 | Life Sciences

Spanish scientists create a 3-D bioprinter to print human skin

24.01.2017 | Health and Medicine

VideoLinks
B2B-VideoLinks
More VideoLinks >>>