Can gender difference affect investment decision making? : behavioural finance : a Maltese perspective

Abstract

Most of the traditional economic theories used to explain investor behaviour assume full investor rationality; however various historical events prove otherwise. This study incorporates the science of Behavioural Finance which highlights a number of behavioural biases in order to explain the reasons behind investment decision making and why it tends to deviate from rationality. The research was based on determining whether any differences in investment decision making are present between Maltese men and women by measuring the degree of risk tolerance for both and comparing the results between different groups of men and women based on a number of different demographic categories namely knowledge, experience, age and marital status. The study involved subjecting a number of clients chosen from one specific local bank in Malta to answering a questionnaire designed to measure the level of risk tolerance. The results show that women are more risk averse than men, these findings are consistent with most of the existing studies, when compared across the different demographic categories the largest behavioural biases were found to be in men since they obtained the largest risk score differences, particularly in the age, education and marital status categories. It is interesting to point out that contrary to most of the existing research, men with higher levels of education where found to be more risk averse than those with lower levels of education. The results obtained for women were also in line with most of the existing research, when compared to men the differences were however smaller which suggests that women are less affected by behavioural biases. A number of tailor made solutions aimed at mitigating such behavioural biases are then being proposed in order to help better educate the Maltese investor on the importance of investment rationality.