Investing and Genetics

A recent research paper suggests investment behavior has a lot to do with genes. Or, as the authors say, individuals to a large extent “are biologically pre-disposed to certain investment behaviors ….”

‘Nature or Nurture: What Determines Investor Behavior?’ looks at the asset allocation and other investment choices of close to 40,000 identical and non-identical twins in the Swedish Twin Registry database. It found that “up to 45% of the overall heterogeneity in investment behavior was explained by a latent genetic factor.” Extraneous factors such as age, education, net-worth, and entrepreneurial activity, were controlled.

The authors believe that their finding is not only relevant for understanding the foundations of investor behavior,” but also for the “effectiveness of public policy intervention related to financial markets.” In particular, attempts to improve the financial literacy of the public face considerable challenges: to the extent investor behavior is hereditary such investment behavior “can persist despite ample feedback and education.”

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[Pat Shuff:]

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according to a study that also suggested tall people are more likely to have higher levels of income and education than smaller peers.

“There is good evidence that cognitive and physical function develop together,” the researchers said. “It is this lack of full cognitive development that accounts for lower levels of education, and lower earnings in adulthood which, in turn, are almost entirely responsible for lower levels of life evaluation, and poorer emotional outcomes.”

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Sep 10 01:45 PM