They say that if women ran the world, there would be no wars. If women ran Wall Street, would there have been no recession?
Most definitely, according to Po Bronson and Ashley Merryman, authors of the new book “Top Dog: The Science of Winning and Losing” (Twelve), which cites a groundbreaking 2010 study by Dr. Alok Kumar at the University of Texas.
“You might think everyone would’ve jumped on this,” Bronson says, laughing. “Here’s this thing that explains the financial crisis!”
In 2009, John Coates, a neuroscientist at Cambridge University, asserted that the overwhelmingly male composition of the Street was deeply problematic. “Women have only 10% of the testosterone men have,” he said, adding that studies have shown testosterone spikes in men when their trades did well — leading to a hunger for more risk while impairing their critical thinking. “The trading world is 95% young males,” he said. “If there were more women . . . there might be more stability.”
In the wake of several studies that showed female CFOs are consistently better at maximizing revenue than their male counterparts, Kumar wondered whether there was a larger pattern. He wound up breaking apart Thomson Reuters’ International Brokers Estimate System, which contained every single projection made by any and all Wall Street analysts from 1983 — right around the time women began working on the Street as something other than secretaries — to 2006.
There were 3 million projections in all, and the numbers were decisive. When it comes to predictions, women were more often right than men, by a margin of 7.3% — and this, often, with less experience than men. Of the market’s 48 disparate industries, female analysts outdid the men in 33 of them. According to a 2006 report by Institutional Investor magazine, there were more female “all-star” analysts than male, and again, they far outpaced their male counterparts.
What is going on?
According to Bronson and Merryman, numerous studies have shown that women are just better predictors of risk, while men tend to be bolder and more (falsely) confident that the odds are in their favor. It’s not that women are more risk-averse — it’s that they’re better risk-assessors. They are more likely to take chances when there are enough favorable indicators, whereas men are more likely to take risks blindly.
This, the authors believe, may in large part explain why women are so under-represented in politics: according to a Texas A&M study of 835 men and women serving at the state level, women would not consider running for Congress if they had less than a 20% chance of winning.
Men, on the other hand, would run if they wanted to run; the data would not often dissuade them. The author of the study, Professor Sarah Fulton, is quoted in the book as saying here, too, it’s the focus on risk that separates women from men.
“I’m not saying that men are not strategic, but women are more responsive to the costs and benefits,” she said. “You could vary the chance of winning, but it isn’t going to alter the men’s running all that much. But for women, it’s a really strong, steep slope. They’re extremely responsive to the chance of winning.”
It’s this same approach, the authors say, that accounts for the high level of performance among women on Wall Street, and Kumar’s findings spurred similar studies in Europe. The results tracked: here, too, men were more likely to make bold moves and push a company towards risk, while women were more accurate assessors of whether a given risk would pay off. This, the authors say, transcends culture, and is down to the differences between men and women’s brains.
Po and Merryman cite studies suggesting that the levels of estrogen that peak in women twice a month, before ovulation and menstruation, add to a spike in dopamine — which is already at a higher set point than in men. Under pressure, they theorize, women slow down, make more methodical decisions, and seek out non-verbal cues in order to calm — or escape — any given situation.
As well, women are more accurate predictors of their own talents and skill sets, while men fall prey here, as well, to optimism bias. “Women are better judges of their own ability,” the authors write. “It’s not that women are naturally risk-averse. They perceive risk quite accurately. It’s not that women are afraid of the competition itself, or don’t enjoy the competition — it’s that they’re better at recognizing when they will probably lose.”
And yet, in the face of all this data, women are still woefully under-represented on Wall Street: 84% of analysts are male. Perversely, the authors believe that the incredibly high bar set by the women already in those chairs has led to more stringent expectations of would-be female analysts.
“Wall Street is indeed an inefficient labor market,” the authors write. “Women are under-hired; only the very best are getting in. Meanwhile, plenty of inaccurate men are being hired, and they are paid hundreds of thousands of dollars for jobs they aren’t good at.”
mcallahan@nypost.com