This paper reviews the literature on gender differences in economic experiments. In the three main sections, we identify robust differences in risk preferences, social (other-regarding) preferences, and competitive preferences. We also speculate on the source of these differences, as well as on their implications. Our hope is that this article will serve as a resource for those seeking to understand gender differences and to use as a starting point to illuminate the debate on gender-specific outcomes in the labor and goods markets.

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Gender Differences in Preferences

In 1974 an article appeared in Science magazine with the dry-sounding title “Judgment Under Uncertainty: Heuristics and Biases” by a pair of psychologists who were not well known outside their discipline of decision theory. In it Amos Tversky and Daniel Kahneman introduced the world to Prospect Theory, which mapped out how humans actually behave when faced with decisions about gains and losses, in contrast to how economists assumed that people behave. Prospect Theory turned Economics on its head by demonstrating through a series of ingenious experiments that people are much more concerned with losses than they are with gains, and that framing a choice from one perspective or the other will result in decisions that are exactly the opposite of each other, even if the outcomes are monetarily the same. Prospect Theory led cognitive psychology in a new direction that began to uncover other human biases in thinking that are probably not learned but are part of our brain’s wiring.

Thinking fast and slow.

We investigate conditions sufficient for identification of average treatment effects using instrumental variables. First we show that the existence of valid instruments is not sufficient to identify any meaningful average treatment effect. We then establish that the combination of an instrument and a condition on the relation between the instrument and the participation status is sufficient for identification of a local average treatment effect for those who can be induced to change their participation status by changing the value of the instrument. Finally we derive the probability limit of the standard IV estimator under these conditions. It is seen to be a weighted average of local average treatment effects.

Evolution and Rationality Some Recent Game-Theoretic Results. Identification and Estimation of Local Average Treatment Effects

Policy makers have embraced financial education as a necessary antidote to the increasing complexity of consumers' financial decisions over the last generation. We conduct a meta-analysis of the relationship of financial literacy and of financial education to financial behaviors in 168 papers covering 201 prior studies. We find that interventions to improve financial literacy explain only 0.1% of the variance in financial behaviors studied, with weaker effects in low-income samples. Like other education, financial education decays over time; even large interventions with many hours of instruction have negligible effects on behavior 20 months or more from the time of intervention. Correlational studies that measure financial literacy find stronger associations with financial behaviors. We conduct three empirical studies, and we find that the partial effects of financial literacy diminish dramatically when one controls for psychological traits that have been omitted in prior research or when one uses an instrument for financial literacy to control for omitted variables. Financial education as studied to date has serious limitations that have been masked by the apparently larger effects in correlational studies. We envisage a reduced role for financial education that is not elaborated or acted upon soon afterward. We suggest a real but narrower role for “just-in-time” financial education tied to specific behaviors it intends to help. We conclude with a discussion of the characteristics of behaviors that might affect the policy maker's mix of financial education, choice architecture, and regulation as tools to help consumer financial behavior.

This paper was accepted by Uri Gneezy, behavioral economics.

https://pubsonline.informs.org/doi/pdf/10.1287/mnsc.2013.1849

Financial Literacy, Financial Education, and Downstream Financial Behaviors

We conducted experiments in Vietnamese villages to determine the predictors of risk and time preferences. In villages with higher mean income, people are less loss-averse and more patient. Household income is correlated with patience but not with risk. We expand measurements of risk and time preferences beyond expected utility and exponential discounting, replacing those models with prospect theory and a three-parameter hyperbolic discounting model. Comparable risk parameter estimates have been found for Chinese farmers, using our method.

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Risk and time preferences: linking experimental and household survey data from Vietnam

Household investment mistakes are an important concern for researchers and policymakers alike. Portfolio underdiversification ranks among those mistakes that are potentially most costly. However, its roots and empirical importance are poorly understood. I estimate quantitatively meaningful diversification statistics and investigate their relationship with key variables. Nearly all households that score high on financial literacy or rely on professionals or private contacts for advice achieve reasonable investment outcomes. Compared to these groups, households with below-median financial literacy that trust their own decision-making capabilities lose an expected 50 bps on average. All group differences stem from the top of the loss distribution.

How Does Household Portfolio Diversification Vary with Financial Literacy and Financial Advice

We analyse risk preferences using an experiment with real incentives in a representative sample of 1,422 Dutch respondents. Our econometric model incorporates four structural parameters that vary with observed and unobserved characteristics: Utility curvature, loss aversion, preferences towards the timing of uncertainty resolution, and the propensity to choose randomly rather than on the basis of preferences. We find that all four parameters contribute to explaining choice behaviour. The structural parameters are significantly associated with socio-economic variables, but it is essential to incorporate unobserved heterogeneity in each of them to match the rich variety of choice patterns in the data.

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Heterogeneity in risky choice behaviour in a broad population

Cognitive impairment has emerged as a major driver of disability in old age, with profound effects on individual well-being and decision making at older ages. In the light of policies aimed at postponing retirement ages, an important question is whether continued labour supply helps to maintain high levels of cognition at older ages. We use data of older men from the US Health and Retirement Study to estimate the effect of continued labour market participation at older ages on later-life cognition. As retirement itself is likely to depend on cognitive functioning and may thus be endogenous, we use offers of early retirement windows as instruments for retirement in econometric models for later-life cognitive functioning. These offers of early retirement are legally required to be nondiscriminatory and thus, inter alia, unrelated to cognitive functioning. At the same time, these offers of early retirement options are significant predictors of retirement. Although the simple ordinary least squares estimates show a negative relationship between retirement duration and various measures of cognitive functioning, instrumental variable estimates suggest that these associations may not be causal effects. Specifically, we find no clear relationship between retirement duration and later-life cognition for white-collar workers and, if anything, a positive relationship for blue-collar workers.

The effect of retirement on cognitive functioning

We study the eect of permanent income innovations on health for a prime-aged population. Using information on more than half a million individuals sampled over a twenty-five year period in three dierent cross-sectional surveys we aggregate data by date-of-birth cohort to construct a ’synthetic cohort’ dataset with details of income, expenditure, socio-demographic factors, health outcomes and selected risk factors. We then exploit structural and arguably exogenous changes in cohort incomes over the eighties and nineties to uncover causal eects of permanent income shocks on health. We find that such income innovations have little eects on health, but do aect health behaviour and mortality.

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The impact of income shocks on health: evidence from cohort data

We estimate mortality rates by a measure of socio-economic status in a very large sample of male German pensioners aged 65 or older. Our analysis is entirely nonparametric. Furthermore, the data enable us to compare mortality experiences in eastern and western Germany conditional on socio-economic status. As a simple summary measure, we compute period life expectancies at age 65. Our findings show a lower bound of almost 50 percent (six years) on the difference in life expectancy between the lowest and the highest socio-economic group considered. Within groups, we find similar values for the former GDR and western Germany. Our analysis contributes to the literature in three aspects. First, we provide the first population-based differential mortality study for Germany. Second, we use a novel measure of lifetime earnings as a proxy for socio-economic status that remains applicable to retired people. Third, the comparison between eastern and western Germany may provide some interesting insights for transformation countries. (ProQuest: ... denotes formula omitted.) 1. Introduction The international literature on socio-economic status and mortality is marked by a persisting absence of studies on Germany,3 probably owing to the lack of large high quality datasets. Fortunately, the situation has changed since the inception of the Research Data Centre of the German Pension Insurance (Forschungsdatenzentrum der Rentenversicherung) which has made available a large database of public pension records. These data enable us to make a number of, albeit small, contributions to the existing literature. We document mortality inequalities among elderly men in Germany. The data permit us to compare the regions of the former German Democratic Republic (GDR) with the rest of Germany. Due to the very different institutions for forty years, differences may well be expected. In addition, the German pension system enables us to measure socioeconomic status by means of a variable which we term lifetime earnings, a discounted sum of pensionable earnings over the life-cycle. We argue that the variable is a very broad measure of socio-economic status that is also readily applicable to the retired population. Finally, due to the large size of our dataset, we do not need to resort to any parametric assumptions on the structure of the relationship between lifetime earnings and mortality.4 For period life expectancy at age 65, our results indicate a lower bound of six years on the difference between the lowest and the highest earnings group considered in our study. As measured from the lowest group, this constitutes a difference of almost fifty percent. Life expectancy rises almost linearly over a sizable part of the lifetime earnings distribution. Despite the fact that we do find lower overall mortality in western Germany than in the former GDR, our results show similar life expectancies within income groups. The unconditional difference, hence, comes from composition effects. Our results merely reveal a correlation between lifetime earnings and mortality. From our estimates, nothing can be said about the underlying pathways that lead to these figures. In general, three broad channels of causality can be imagined. Epidemiologists stress the importance of causality from income to health (Marmot, 1999). Economists are often preoccupied with quantifying the reverse direction by which it is a low health status that impairs current and future earnings capacity (Smith, 2004). A third explanation is that there are one or more underlying factors determining both income and health. Among many potential candidates are genetics, ability, intelligence, social skills, networks, and other background or early life factors, such as parental income (Case et al. 2002) or education (Lleras Muney, 2005). We see our contribution in documenting a strong relationship between lifetime earnings and life expectancy in Germany that calls for more research on its origins. …

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Hans-Martin von Gaudecker

Papers

How Does Household Portfolio Diversification Vary with Financial Literacy and Financial Advice

Heterogeneity in risky choice behaviour in a broad population

The effect of retirement on cognitive functioning

The impact of income shocks on health: evidence from cohort data

Differential mortality by lifetime earnings in Germany