Behavioural Finance: Investor Personality

Gender and Investing

Writing on gender is almost guaranteed to get the author in hot water. What value is there in discerning differences between men and women? From the point of view of the investment advisor, it seems like another justification for stereotyping the client rather than paying attention to each client’s financial goals and fears. While I am confident that on a very large scale, differences in financial behaviour between men and women can be discerned, our common humanity means there is a lot of overlap.


What are some of those differences?

According to a study I read:

  • Men are more overconfident and optimistic than women.
  • Women are more likely to buy and hold their investments for the long term.
  • Men are more risk tolerant than women.


In a paper entitled, “Gender: Behavioural finance and satisfaction with life,” published in 2017, authors Suné Ferreira and Zandri Dickason of North-West University in South Africa, noted that among men the top three biases in order were Representativeness, Self-control and Availability. For women, their top three were Representativeness, Self-control and Regret aversion. Note the overlap on two out of three of the biases.


Representativeness bias,

or the representativeness heuristic, involves using mental shortcuts to make decisions based on past events that are believed to be representative of the current situation. So, for example, a mutual fund managed by Fund Manager A did well recently. Fund Manager A is now also managing a new mutual fund with a different mandate; you think it will probably do well, too. Investing can be quite complex if you are trying to pick winning stocks or winning actively managed funds, so simplifying your criteria for making a choice makes it easier to come to a decision. Unfortunately, it may not be the best decision.


Self-control bias

is more often about the lack of self-control. One example would have to do with the tendency to spend today at the expense of saving for tomorrow. Certain sales promotions at retail stores take advantage of this characteristic. Last year, my wife and I bought some sub-flooring for our basement to insulate the concrete floor. As I recall, we spent about $1,800. We also received a credit of $100 for putting the purchase on a new store-branded credit card. Furthermore, payment was deferred for six months, interest-free. That seems like a great deal. If, however, we were not able save up the required sum to make full payment by the deadline, then all the deferred interest, at a 28% annual rate, would be added to the bill. The retail stores who offer these deals know that many of their customers cannot maintain the self-control to manage this “deal,” so consequently, the purchaser loses and the retailer wins. By the way, we did make the full payment in advance of the 6-month deadline.


Availability bias

is a kind of thinking that leads people to estimate the probability of an outcome based on how common or familiar that particular outcome appears in their lives. We tend to anticipate easily recalled possibilities as more likely than outcomes that are harder to imagine. An example might be that people will guess that deaths from an attack by an animal are a relatively frequent occurrence. Shark attacks are probably the classic example. They certainly figure in the news quite a bit. However, one study showed that people are more than 5 times likely to be killed by a pedestrian road accident than by an animal attack. In the investing world, an example would be that the mutual fund company that advertises a lot is much more likely to be thought of as a provider of good-performing funds simply because their name is familiar to you. However, the more likely answer is that they are just good at advertising. This bias is one that men are more susceptible to.


Regret aversion

was a bias I mentioned in my previous post. In summary, it is the bias against making decisions because you don’t want to look back with regret over a possible bad result from a decision made earlier. Women tend toward this bias more than men, more fearful of making a financial decision that they will regret.


Among those listed, I recognize representativeness (male/female) and regret aversion (female) as two biases to which I am subject. A disciplined investment plan, aided by automating my investment purchases and switching to low-cost index funds, made all the difference for me.


Do you see any of these biases in your own financial decision-making?


Investor Personality Types

There are multiple tests out there that are used to help you figure out your psychological preferences. The Myers-Briggs Type Indicator is probably one of the most well-known, although it has been strongly criticized. There are also several such personality type quizzes or tests to determine your financial personality, too. I am going to suggest that you take a couple to see whether they make sense of your personality when it comes to money.


InvestRight – British Columbia Securities Commission

The first and briefer of the two is offered by the British Columbia Securities Commission at their website for investors. Your personality will be described as one of: Confident, Diligent, Impulsive, Reserved and Tumultuous. You can take the test here:


For the record, my personality was labelled as Reserved. Here is a pie chart showing how investor personalities are broken out across Canada:



Where do you fit in?



Another test, which comes from the organization Marketpsych, is a bit more detailed and requires you to register to get your free results. Instead of a single word to describe yourself in this case, you will be measured on a variety of factors analyzing your personality and biases. You will be assessed as having a score somewhere between very high and very low in each category.


You can begin the test here:


The benefit of these exercises is that you can get a better handle on how you behave with respect to your finances and help you understand areas of your personality that might cause you to act in ways that are financially not in your own best interest.


One of the most surprising results for me is that I scored high on trend-following. To avoid being susceptible to the negatives of such behaviour, the report recommends I “avoid listening to financial media, colleagues, or market gurus (such as on CNBC – or in Canada BNN Bloomberg) for investment ideas. I will have to think about this some more, but as I already avoid listening to financial media or market gurus, I guess I’m doing a pretty good job. For those who are susceptible to this bias, having a clear financial plan and automating your investing goes a long way toward avoiding these negatives.


The reality is the quirks of our personalities and biases are inevitable. We are not automatons, not perfectly rational by any means. Some of our biases will work in our favour, while others will work against us. Fortunately, there are ways to counter the negative biases. I encourage you to take these tests and see whether the results ring true for you. What might you be able to do as a result of this new self-knowledge?


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Disclaimer: This blog post is intended for general information and discussion purposes only. It should not be relied upon for investment, insurance, tax or legal decisions.