Risk tolerance: the reason for gender inequality? An analysis of risk tolerance, its differences in risk tolerance between individuals, and its impact on wealth accumulation

This paper examines risk tolerance in the context of the allocation of Individual Retirement Account portfolios. The aim of this paper is to get a good understanding of risk tolerance for men and women, and to investigate how this helps explain the difference in wealth between the genders. To do this, the methods of Neelakantan (2009) and a maximum likelihood approach are applied to data of 2006 and 2014 from the Health and Retirement Study. This paper also investigates whether gender affects risk tolerance when controlling for other variables, and whether self-reported risk tolerance can be used to help explain risk tolerance for individuals. This paper finds inconsistent results between samples on differences in risk tolerance and wealth in a cross-sectional setting for 2006. In addition, the part of the wealth gap that can be explained by differences in risk tolerance between men and women has increased between 2006 and 2014 when gender is the only characteristic considered. Furthermore, when controlling for other variables, gender seems to have no significant effect on risk tolerance but ethnicity does. Lastly, this paper finds no significant evidence that self-reported risk tolerance can be used as a proxy for risk tolerance.