The Genetics Behind Economic Risk Taking

What’s to blame for the global financial meltdown? Is it the banks? The government? Greed? Try DNA. New research from scientists at Northwestern University has linked two specific genes to risk-taking in financial investment decisions.

The researchers started with the theory that many of the investors who took the excessive risks that led to the current financial crisis may carry two gene variants responsible for regulating dopamine and serotonin, brain chemicals that help us experience the pleasure of reward. To test their speculation, they gave 65 students $15 to make a series of investments, allowing them to spread their cash between risky and risk-free assets as they saw fit.

Before deciding how to bet their money, the subjects were told that the risk-free investments would net about 3-percent profit and the risky assets might have a return as high as 20-percent. As the participants (evenly divided between twenty-something men and women) made a series of 96 “trades” over the course of 90 minutes, they were continuously fed more money but weren’t clued in about the performance of their portfolios until the end of the exercise.

Just as the researchers predicted, people who possessed the two gene variants invested about 25 percent more on the riskier investments than those who didn’t and the more money they were given, the more they gambled on riskier strategies. "Our research pinpoints, for the first time, the roles that specific gene variants play in predicting whether people are more or less likely to take financial risks," said Camelia M. Kuhnen, assistant professor of finance, Kellogg School of Management at Northwestern and one of the study’s lead authors. "It shows that individual variability in our genetic makeup effects economic behavior."

The Northwestern study suggests that researchers are getting closer to pinpointing specific genetic mechanisms underlying complex social and economic behavior that has been a mystery -- including drug addiction, gambling and risk-taking. "As we sort through the devastating consequences of this financial crisis, it might be useful to note how our genetic heritage is influencing our economic behavior," said Joan Y. Chiao, the study’s other lead author. "Think about how the excessive risks taken by just a few affected so many, from large institutions to average people."

Still, the scientists caution, more research is needed to further understand investor behavior, given the complex influences of nature versus nurture on financial decisions. They say that less than 30 percent of variation across people in risk-taking comes from genetics. The rest comes from experience and upbringing.