Finally, women’s generally lower confidence levels and consensus-driven approach —as revealed in BlackRock’s Investor Pulse survey—may put them at a disadvantage, as good investment returns often require some degree of contrarian thinking. Men with their more individualistic approach may, on the other hand, be more prone to the confirmatory bias. In other words, they may discard information that conflicts with their existing knowledge, and be slow at cutting loss-making positions and taking advantage of capital losses for tax purposes.
Q: What can men and women do to mitigate the detrimental impact of their decision making tendencies?
A: Both men and women should make sure that their investment styles and horizons match their overall financial goals. For women, this may mean taking on more risk. For men, this may mean focusing more on longer-horizon goals, rather than on short-term trading track records.
Women may also want to review the efficiency of their investment allocations across their portfolios to counter the negative impact of mental accounting. In addition, they may want to consider attending financial education seminars to help boost their lower confidence levels and ability to make timely, well-informed investment decisions.
Meanwhile, to help avoid snap decisions and market timing impulses, men may benefit from implementing a systematic investment strategy and a periodic, rather than continuous, review of their accounts and rebalancing. Finally, to counter confirmatory bias, men may want to consider becoming a bit more open to professional financial advice.
Nelli Oster, PhD, is a Director and Investment Strategist in BlackRock’s Multi-Asset Strategies Group. She holds a BSc (Hons) in Management Sciences from the London School of Economics and a PhD in Finance from the Stanford Graduate School of Business, where her dissertation focused on behavioral finance. You can find more of her posts here.