“Sometimes I wonder if men and women really suit each other. Perhaps they should live next door and just visit now and then.” (Katharine Hepburn)
All of us sometimes make decisions that are not in our best interests. This is because we are affected by psychological biases that affect how we act.
A lot of academic research has now been done on this. More studies are also finding that some of these issues are more likely to affect men, while others are more common in women.
For instance, a paper published recently by three Sri Lankan academics found that:
“Females tend to follow other investors in investment decisions. On the other hand, the effect of overconfidence on investment decision-making was found to be significantly stronger for male than female investors.”
This is not revolutionary. Other studies have shown the same thing: that men tend to overestimate their own abilities, while women are prone to a “herd” mentality and investing with the crowd.
Most people won’t find this surprising. Men and women tend to show similar behavioural traits in many settings.
Since men like to feel that they are taking action when a problem arises, they often overestimate their ability to deal with issues. Women, on the other hand, tend to like to talk a problem through and get confirmation from others that they are doing the right thing.
Of course, not all men or all women behave exactly this way. These are generalisations.
But if we understand that we might be predisposed to certain behaviours, we can be aware of when we do act this way. That allows us to do something about it.
If we believe we can identify which investments are going to outperform next, for example, we might frequently want to change our portfolios. But, in reality, nobody can persistently predict what is going to happen in the short term. It is much better to let your investments develop over the long term.
If you are prone to overestimating your investment skills, there are some steps you can take:
On the other hand, we might be one of those people who is only comfortable making investment decisions when we know other people are already doing the same thing.
And there are three simple ways to address this too:
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