Common genetic effects on risk-taking preferences and choices. Nicos Nicolaou & Scott Shane. Journal of Risk and Uncertainty, Jan 9 2020. https://link.springer.com/article/10.1007/s11166-019-09316-2
Abstract: Although prior research has shown that risk-taking preferences and choices are correlated across many domains, there is a dearth of research investigating whether these correlations are primarily the result of genetic or environmental factors. We examine the extent to which common genetic factors account for the association between general risk-taking preferences and domain-specific risk-taking preferences, and between general risk-taking preferences and risk taking choices in financial investments, stock market participation and business formation. Using data from 1898 monozygotic (MZ) and 1344 same-sex dizygotic (DZ) twins, we find that general risk-taking shares a common genetic component with domain-specific risk-taking preferences and risk-taking choices.
Discussion
Although
prior research has shown that general risk preferences, domain-specific
risk preferences and choices that involve risk are correlated, very
little work has investigated whether these correlations were primarily
the result of genetic or environmental factors. This study showed that
the correlations between general risk preferences, domain-specific risk
preferences, financial investment choices, stock market participation,
and business formation choices are partially the result of genetic
factors.
Human beings may have evolved into different types: Those whose genetic composition predisposes them to high-risk-high-return choices and those whose genetic composition predisposes them to low-risk-low-reward choices. Just as our ancestors chose between hunting and gathering in part because they had innate predispositions toward risk tolerance or risk aversion, today’s humans might choose between low-risk-low-return and high-risk-high-return occupations and investment strategies.
We posit that the common genetic component to these preferences leads to correlated behaviors among people. Genetic factors account for part of the covariance between general risk preferences and domain-specific risk preferences, between general risk preferences and financial investment choices, between general risk preferences and stock market participation, and between general risk preferences and the choice of entrepreneurship as an occupation. People that are more risk tolerant are more likely to invest in stocks, make riskier financial choices and choose risky occupations, in part, because of the biological processes underlying their behavior.
Our study contributes to a biosocial perspective on risk taking. Domain-specific risk preferences have a non-trivial genetic component. In addition, financial investment choices, the choice to become an entrepreneur, and stock market participation have a sizeable genetic component. These patterns suggest that cross-sectional differences in the preference for risk and risk-taking behavior emerge naturally in a society as a function of the distribution of genetic composition (Karlsson Linnèr et al. 2019).
These results have interesting implications for those who examine risk taking. Parent-child similarity in risk taking, a commonly found correlation, may not result from cultural transmission as much as from genetic factors. While our findings do not negate the significance of environmental factors, they show that genetic influences cannot be ignored.
In addition, our results show that all of the environmental influences in risk taking were of the non-shared variety. This suggests that differential experiences outside the family, such as work environment and work colleagues, are more important for risk taking than shared environmental factors such as parental education and shared family rules and upbringing.
Our analysis suggests that a non-trivial fraction of the correlation between risk-taking behaviors results from innate factors. Because the ways to enhance those behaviors vary depending on the levels of genetic and environmental correlations, our results suggest that researchers need to think more carefully about the ways in which interventions might be used to increase the level of risk-taking behavior. Even if variables display a phenotypic correlation, interventions to increase one variable will not be likely to increase the other unless the correlations are largely environmental. Our results showed that a greater fraction of the correlation between general risk-taking preference and stock market participation was genetic than the fraction of the correlation between general risk taking preference and the tendency to be an entrepreneur. Therefore, efforts to increase entry into entrepreneurship by changing risk preferences through education may prove more effective than efforts to increase stock market participation through educationally-induced shifts in general risk preferences.
In addition, our study has implications for molecular genetics research in risk-taking behavior. Because common genetic factors account for a sizeable portion of the correlation between risk-taking preferences and choices in different domains, genes associated with those preferences and choices in one domain are plausible candidate genes for molecular genetics studies of risk-taking preferences and choices in other domains. These genes may also be influential for identifying gene-environment interactions in risk-taking.
It is crucial to stress that our study does not contend that genes determine risk taking behavior. As Johnson et al. (2009) argue, “even highly heritable traits can be strongly manipulated by the environment, so heritability has little if anything to do with controllability” (p. 218). Genes may only predispose some people and not others to develop risk taking preferences and choices. Thus, it is imperative for future research to understand the role that genes play in concert with contextual and environmental factors.
Our study has several limitations. Approximately 92% of the sample is female, hindering our ability to generalize our results to males. If women are less risk-taking than men, the range of our findings might be restricted when applied to males. While we have no reason to believe that genetic factors would only influence the correlation between risk-taking behavior in women and not men, we cannot show the generalizability of our findings across gender either.
Moreover, as in all twin studies, our analysis assumes that there is no assortative mating. Assortative mating—which can arise when individuals have children with individuals who are genetically similar to them—increases the probability that children of similar parents receive more similar gene variants for some attributes than children of “non-similar” parents. Because assortative mating increases the genetic similarity between fraternal twins, but not between identical twins (Guo 2005), it biases the results of twin studies by underestimating the heritability estimates (Plomin et al. 2008). Because we do not know if there is parental assortative mating with respect to risk-taking preferences and choices, we must caution that our findings could be biased downward, and underrepresent the common genetic component to risk-taking.
Furthermore, any violation of the equal environments assumption (EEA) may also affect the robustness of our findings. If environmental factors behave towards identical twins more similarly than towards fraternal twins with respect to risk-taking preferences or choices, the validity of the EEA would be challenged. While we have no reason to believe that this would be the case, we do not have the evidence to empirically verify the validity of the EEA in our study.
In addition, our results may be affected by measurement error. Beauchamp et al. (2017) found that measurement-error-adjusted estimates of heritability were considerably higher than the non-adjusted estimates. They conjecture that “once measurement error is controlled for, the heritability of most economic attitudes will approach that of the ‘Big Five’ in personality research” (Beauchamp et al. 2017: 231). This suggests that the heritability estimates for our risk taking variables may be conservative.
Finally, our analysis says nothing about the specific genetic mechanism involved in risk taking preferences and choices. Our results are consistent with the proposition that people with different genotypes select into different environments for risk-taking, as well as the proposition that genes themselves have a proximal effect on risk-taking preferences and choices. Moreover, we cannot know from these results what genes are involved in risk-taking preferences and choices or how many genes influence the observed outcomes.
We conclude by strongly encouraging additional research on the genetics of risk-taking. Considering the complementary role that biology plays in accounting for risk-taking is important lest we limit our ability to explain this important phenomenon. While most social scientists are comfortable exploring the role of environmental factors, they are less comfortable looking at the part that genetics plays. But, as Song, Li, & Wang (2015) have stressed, the need to account for more of the variance in work-related behaviour suggests that the role of genetics should be more carefully considered.
Human beings may have evolved into different types: Those whose genetic composition predisposes them to high-risk-high-return choices and those whose genetic composition predisposes them to low-risk-low-reward choices. Just as our ancestors chose between hunting and gathering in part because they had innate predispositions toward risk tolerance or risk aversion, today’s humans might choose between low-risk-low-return and high-risk-high-return occupations and investment strategies.
We posit that the common genetic component to these preferences leads to correlated behaviors among people. Genetic factors account for part of the covariance between general risk preferences and domain-specific risk preferences, between general risk preferences and financial investment choices, between general risk preferences and stock market participation, and between general risk preferences and the choice of entrepreneurship as an occupation. People that are more risk tolerant are more likely to invest in stocks, make riskier financial choices and choose risky occupations, in part, because of the biological processes underlying their behavior.
Our study contributes to a biosocial perspective on risk taking. Domain-specific risk preferences have a non-trivial genetic component. In addition, financial investment choices, the choice to become an entrepreneur, and stock market participation have a sizeable genetic component. These patterns suggest that cross-sectional differences in the preference for risk and risk-taking behavior emerge naturally in a society as a function of the distribution of genetic composition (Karlsson Linnèr et al. 2019).
These results have interesting implications for those who examine risk taking. Parent-child similarity in risk taking, a commonly found correlation, may not result from cultural transmission as much as from genetic factors. While our findings do not negate the significance of environmental factors, they show that genetic influences cannot be ignored.
In addition, our results show that all of the environmental influences in risk taking were of the non-shared variety. This suggests that differential experiences outside the family, such as work environment and work colleagues, are more important for risk taking than shared environmental factors such as parental education and shared family rules and upbringing.
Our analysis suggests that a non-trivial fraction of the correlation between risk-taking behaviors results from innate factors. Because the ways to enhance those behaviors vary depending on the levels of genetic and environmental correlations, our results suggest that researchers need to think more carefully about the ways in which interventions might be used to increase the level of risk-taking behavior. Even if variables display a phenotypic correlation, interventions to increase one variable will not be likely to increase the other unless the correlations are largely environmental. Our results showed that a greater fraction of the correlation between general risk-taking preference and stock market participation was genetic than the fraction of the correlation between general risk taking preference and the tendency to be an entrepreneur. Therefore, efforts to increase entry into entrepreneurship by changing risk preferences through education may prove more effective than efforts to increase stock market participation through educationally-induced shifts in general risk preferences.
In addition, our study has implications for molecular genetics research in risk-taking behavior. Because common genetic factors account for a sizeable portion of the correlation between risk-taking preferences and choices in different domains, genes associated with those preferences and choices in one domain are plausible candidate genes for molecular genetics studies of risk-taking preferences and choices in other domains. These genes may also be influential for identifying gene-environment interactions in risk-taking.
It is crucial to stress that our study does not contend that genes determine risk taking behavior. As Johnson et al. (2009) argue, “even highly heritable traits can be strongly manipulated by the environment, so heritability has little if anything to do with controllability” (p. 218). Genes may only predispose some people and not others to develop risk taking preferences and choices. Thus, it is imperative for future research to understand the role that genes play in concert with contextual and environmental factors.
Our study has several limitations. Approximately 92% of the sample is female, hindering our ability to generalize our results to males. If women are less risk-taking than men, the range of our findings might be restricted when applied to males. While we have no reason to believe that genetic factors would only influence the correlation between risk-taking behavior in women and not men, we cannot show the generalizability of our findings across gender either.
Moreover, as in all twin studies, our analysis assumes that there is no assortative mating. Assortative mating—which can arise when individuals have children with individuals who are genetically similar to them—increases the probability that children of similar parents receive more similar gene variants for some attributes than children of “non-similar” parents. Because assortative mating increases the genetic similarity between fraternal twins, but not between identical twins (Guo 2005), it biases the results of twin studies by underestimating the heritability estimates (Plomin et al. 2008). Because we do not know if there is parental assortative mating with respect to risk-taking preferences and choices, we must caution that our findings could be biased downward, and underrepresent the common genetic component to risk-taking.
Furthermore, any violation of the equal environments assumption (EEA) may also affect the robustness of our findings. If environmental factors behave towards identical twins more similarly than towards fraternal twins with respect to risk-taking preferences or choices, the validity of the EEA would be challenged. While we have no reason to believe that this would be the case, we do not have the evidence to empirically verify the validity of the EEA in our study.
In addition, our results may be affected by measurement error. Beauchamp et al. (2017) found that measurement-error-adjusted estimates of heritability were considerably higher than the non-adjusted estimates. They conjecture that “once measurement error is controlled for, the heritability of most economic attitudes will approach that of the ‘Big Five’ in personality research” (Beauchamp et al. 2017: 231). This suggests that the heritability estimates for our risk taking variables may be conservative.
Finally, our analysis says nothing about the specific genetic mechanism involved in risk taking preferences and choices. Our results are consistent with the proposition that people with different genotypes select into different environments for risk-taking, as well as the proposition that genes themselves have a proximal effect on risk-taking preferences and choices. Moreover, we cannot know from these results what genes are involved in risk-taking preferences and choices or how many genes influence the observed outcomes.
We conclude by strongly encouraging additional research on the genetics of risk-taking. Considering the complementary role that biology plays in accounting for risk-taking is important lest we limit our ability to explain this important phenomenon. While most social scientists are comfortable exploring the role of environmental factors, they are less comfortable looking at the part that genetics plays. But, as Song, Li, & Wang (2015) have stressed, the need to account for more of the variance in work-related behaviour suggests that the role of genetics should be more carefully considered.