Genes determine financial risk taking
Northwestern University issued a research paper that revealed how two genes may be responsible for financial risk tolerance. The variants of two genes that regulate dopamine and serotonin neurotransmission and have been previously linked to emotional behavior, anxiety, and addiction are significant determinants of taking financial and investment risks.
Risk tolerance refers to individuals’ willingness to take risk in a variety of settings including financial and investment choices. For example, many employees in the U. S. may have the opportunity to invest in their retirement funds that are exposed to different levels of risks and potential returns. Typically, the higher the potential growth of the investment portfolio, the more risks the portfolio involves. All affecting factors equal, it seems that different personalities may still choose packages with different levels of risks. Now, Northwestern University produced scientific evidence that we are born genetically different in terms of taking financial risks.
Previous studies estimate that genes are responsible for 20% variation in risk taking in experimental lottery choices and between 35-54% of the liability of developing symptoms of pathological gambling.
Recent findings in neuroscience suggest that the neurotransmitters dopamine and serotonin have significant roles in decision making. Genes that regulate these two agents impact the processing of information about rewarding and harmful stimuli, are related to personality traits such as extraversion, novelty seeking and anxiety, and are associated with developing addictions.
Given the mounting evidence that the dopamine and serotonin are involved in decision making, and that genetic variations have a significant effect on the physiology of them, the Northwestern University studies sought to understand whether genetic variations lead to individual differences in financial risk tolerance.
The studies found that individuals carrying different copies of alleles on the studied genes show significant difference in risk taking and risk aversion. The findings provide novel evidence of a genetic basis for financial choices.
Click here to learn the details of the studies conducted by Northwestern University.