I find it shocking how quickly many women will tell me how little they understand about financial matters. And why is that? A man with about the same level of knowledge will usually have a completely exaggerated sense of his knowledge and abilities! It's not that we can't understand financial issues, it's just that most women don't seem to really want to. And why is that? Women don't dislike money, and they don't dislike doing smart things, so what is it?
Well for one thing, financial choices involve risk, and we don't really like risk. Biologically, we're not really programmed to like risk (appetite for risk apparently increases with testosterone levels. Yeah, Really!). Making financial decisions involves the risk of making bad ones, that might result in losing a lot of money. We don't like making mistakes (or at least that's what I've been told by those who have made them). There's also risk involved in asking questions about things we don't understand. Maybe we don't want to risk being thought of as stupid. Of course, these are generalizations, and it's not fair to say that every man parades around like a proud peacock who knows everything there is to know about money, but I do seem to meet an awful lot of women who behave rather like financial ostriches.
In a recent National Geographic article on The Evolution of Narcissism (god, I love that title), researchers explain that overconfidence can be to one's benefit when the cost of failure is low, the potential benefit is high, and the strength of the competition is uncertain. For example, a man trying to pick up a woman, will overestimates his charm and attractiveness, see there are no competitors around, quickly assesses the consequence of rejection as something he can live with, and then, by coming off as strangely confident, he succeeds in winning the woman's affections.
But if the cost is high (let's say, losing all the money you have in the world), then overconfidence isn't always very useful. Overconfidence can make you feel comfortable taking on big risks, but it can be a problem when not matched by the ability to asses the degree of risk, or ones ability to overcome it. The Avengers are overconfident, but they have superpowers, whereas you should probably not anger that really large guy in the car next to you with the shotgun rack. He may not find your overconfidence all that charming. Therefore It should also be said that this willingness to take big risks does not result in more frequent successes. Your overconfidence in your investment skill does nothing to help you overcome the statistical improbability of beating the market.
In the area of finance, women tend to be under-confident. We don't want to risk losing money on an investment, so we leave the money in the mattress, and lose buying power to inflation. We don't want to make the mistake of trusting the wrong advisor, so we don't get advice, or we don't invest at all. We generally don't ask for as high a salary, because we don't want to risk alienating the boss and not getting the job. If OVERconfidence is a reflection of underestimating risks, and costs, UNDERconfidence must be a matter of OVERestimating them.
Overconfidence may be foolish, but sticking your head in the sand is not sexy either. And somewhere in the back of a (heterosexual) woman's brain is the ever-present idea that a man will come along and take care of her, and that he will unburden her of the need to get involved with all this high stakes financial stuff that she doesn't really want to deal with. Maybe he will be on a white horse……with chocolate… and a Merit Badge in finance…..
But then the list of risks shifts to include things like:
1. Risk of (overconfident) man underestimating risk and making unfortunate decisions with our money.
2. Risk of disagreement with (overconfident) man about allocation of our resources (i.e., "You bought WHAT??").
3. Risk of losing money in expensive divorce from (overconfident) man.
Of course, the good part about the guy-on-horse strategy is that unlike all those scary things like overcoming your fears and risking failure, it's surprisingly easy to find the confidence to blame him for making dumb financial decisions.
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