Born to gamble?

2/11/2009 - Financial institutions continue to teeter on the brink of ruin. Banks are still devouring bailout money without loosening credit. And everyone keeps asking, “Why did so many financial titans take such huge risks with our nation’s well being?”

A new study by Kellogg Assistant Professor of Finance Camelia M. Kuhnen and Northwestern University Assistant Professor of Psychology Joan Y. Chiao offers some provocative new insights into that complex question.

The pair’s findings, published Feb. 11 in the open access journal PLoS ONE, suggest that the tendency toward such behavior may be influenced by one’s genes.

“Our research pinpoints, for the first time, the roles that specific variants of the serotonin transporter gene and the dopamine receptor gene play in predicting whether people are more or less likely to take financial risks,” Kuhnen said. “It shows that individual variability in our genetic makeup affects economic behavior.”

In the study, Northwestern students were given real money to make a series of investments. They were to decide in each trial how to allocate money between a risky and a risk-free asset.

Those with the short serotonin transporter gene, relative to those with the long version, invested 28 percent less in a risky investment. Similarly, those who carry a particular gene in the dopamine family, relative to those carrying other versions of that gene, invested about 25 percent more in a risky investment.

Prior research linking the two genetic variants to negative emotion and addiction behaviors suggested to the researchers that those particular brain mechanisms could play a role in financial risk-taking. But until this study, the identification of specific genes underlying financial-risk preferences remained elusive.

The study suggests that researchers are getting closer to pinpointing specific genetic mechanisms underlying complex social and economic behavior that has been a mystery — including drug addiction, gambling and risk-taking.

“As we sort through the devastating consequences of this financial crisis, it might be useful to note how our genetic heritage is influencing our economic behavior,” said Chiao. “Think about how the excessive risks taken by just a few affected so many, from large institutions to average people.”

But Kuhnen cautions that more research is needed to further understand investor behavior, given the complex influence of nature versus nurture on financial decisions. Less than 30 percent of variation across people in risk-taking comes from genetics. The rest comes from experience and upbringing.

“Keep in mind,” Kuhnen said, “that risk-taking in the marketplace may be the result of the genetic makeup of traders and investors, their past experiences in the stock market or their cultural background.”

More information about Kuhnen and Chiao’s study is available in Kellogg Insight.