More Women on Wall Street Could Prevent Future Financial Crashes

Women make more realistic decisions in the financial markets, according to Texas A&M economics professor Catherine Eckel.

By Rhonda FanningFebruary 18, 2015 11:58 am,

It’s common knowledge that it’s mostly men who run the game on Wall Street, even after many of them caused the Great Recession in 2008. Things would be different though, if there were more women handling the money, according to Catherine Eckel, an economics professor at Texas A&M University.

Eckel and her team conducted a behavioral experiment between a group of men and a group of women, and the decisions they made trading in a simulated financial market.

“So you might think that women might make, I don’t know, according to the stereotype, more emotional decisions or might make more mistakes, or on the other hand, you might think that women might be more risk-adverse and cautious in their trading. So we really weren’t sure which way it would go,” she says.

Through the experiment, where they simulated six markets, they found that the group of women only created one small financial bubble in the market, while the men created five big financial bubbles and one small one.

Bubbles mean that the stock is overpriced.

“In the all-male markets, the prices go up…way above the fundamental value, and it is only towards the end of the experiment that they come crashing back down,” Eckel said.

“I think that men believe that you can’t beat the market, but that they can,” she added.

Eckel’s study can be read in the American Economic Review this month.

This story was prepared with assistance by Rachel Phua.