You can blame testosterone.
Men’s perception of greater power in the workplace is why women outpace them when it comes to investment returns, researchers say.
Female money managers consistently outperform their male counterparts, and social scientists say this unbalanced power dynamic is one reason why. But, they add that eventually, as the power balance evens out in the workplace, women may lose some of that edge.
Men's higher testosterone levels lead them to trade more and take riskier positions. "Men can become a little immune to some of the signals in this market," said Meredith Jones, a director at consulting firm Rothstein Kass. "Having more women in risk-tasking positions… can help mitigate some irrational exuberance."
Jones is the author of a study, released Wednesday, that found since 2007, female-owned or female-managed hedge funds delivered returns more than six percentage points higher than hedge funds overall, and two percentage points higher than the S&P 500.
"Women just tend to think about money management and the markets differently," said Jones.
Research done by social scientist Deborah Gruenfeld, co-director of the Executive Program for Women Leaders at the Stanford Graduate School of Business, suggests that the perception of greater power in the workplace can hurt people's decision-making ability.
“We found that power led to perceived control over outcomes that were uncontrollable and/or unrelated to the participants’ power,” she wrote in a research paper published in Psychological Science in 2009.
“Members of dominant groups… [are] more likely than others to believe they can control the future,” she wrote. In the hedge fund world, that’s men; Rothstein Kass found that only about 20 percent of hedge funds are run by women.
“Power makes people less loss-averse. They’re less concerned about what a loss would feel like,” said Ena Inesi, assistant professor of organizational behavior at the London Business School. She theorized that people in positions of power are more likely to have the resources to weather a loss, so they might not be as concerned about potential negative outcomes.
The differences between how men and women behave as managers also could play a role, said Crystal Hoyt, an associate professor of leadership studies at University of Richmond.
Female managers are more likely to collaborate, since a hard-charging, authoritarian leadership style is more likely to be perceived as masculine. "There's a backlash if they're too masculine," she said. "They have to know when to listen to others and not assume they know exactly what to do,” Hoyt said. Taking the advice of others could improve their success as investors.
Movements like LeanIn.org, founded by Facebook's Sheryl Sandberg, aim to make corporate America more welcoming to women. Ironically, social scientists say a more inclusive corporate culture could shrink — although probably not eliminate — the current gap between male and female performance when it comes to investing.
It won’t happen overnight. “I could see it taking longer than a decade,” Jones said. “I think they could potentially get closer but I think it’s very difficult to change behavior and biology.”
As more women rise to leadership roles, bosses of both genders will gravitate towards management styles that work best, which means men and women might solicit the advice and expertise of their colleagues. On the flip side, some female executives confident in their power and not bound by gendered tenets about how women “should” behave might act more like men.
The other factor is just a numbers game: Having more women in the field overall could change gender-based performance differences. "Women face a double standard that slows their rise to the top," Hoyt said. “If you didn’t have the same barriers, mediocre women as well as mediocre men would rise… that would decrease the performance discrepancy,” she said.