This is an idea that has been around for some time now, that the Great Financial Crisis would have been rather different if it had been Lehman Sisters rather than Lehman Brothers. The idea being that women are rather more risk averse than men and thus if the organisation had been female staffed then it wouldn't have taken on so much financial risk. And there's very definitely an element of truth to this: but the final story is rather different from what is commonly assumed. It's only if financial organisations are completely female, or completely male, that risk is reduced. Adding more of either gender to an organisation actually increases risk.
The latest person to muse on this is Christine Lagarde from the IMF:
On why the financial downturn might have turned out differently if the failed Lehman Brothers had been "Lehman Sisters"
I do believe women have different ways of taking risks, of addressing issues ... of ruminating a bit more before they jump to conclusions. And I think that as a result, particularly on the trading floor, in the financial markets in general, the approach would be different. I'm not suggesting that all key functions and roles should be held by women. But I think that there would have to be a much bigger diversity and a better sharing of those functions and roles.
Sadly she's got this entirely wrong.
It's true that women are generally less risk loving (or more risk averse) than men. Do recall though that we're talking about averages here. This does not mean that all women are more risk averse than all men nor the other way around. Just than in general, on average, women are more risk averse than men. So, we can agree that an all female organisation is likely to be more risk averse than an all male one. Again, only likely, not certainly less risk averse.
However, that is not the same as saying that a more gender diverse organisation will be more risk averse. It's possible of course, add more women to a group of men and the average individual risk profile might become more averse thus reducing the total risk loving nature of the collective. Unfortunately for this argument this isn't quite how it turns out:
Are people more risk-taking in the presence of the opposite sex?
Journal of Economic Psychology
Patrick McAlvanah
Federal Trade Commission, Bureau of EconomicsThis paper investigates whether exposure to the opposite sex induces greater risk-taking in both males and females. Experimental subjects evaluated a series of hypothetical monetary gambles before and after viewing pictures of opposite sex faces; control subjects viewed pictures of cars. Both males and females viewing opposite sex photos displayed a significant increase in risk tolerance, whereas the control subjects exhibited no significant change. Surprisingly, the attractiveness of the photo had no effect; subjects viewing photographs of attractive opposite sex persons displayed similar results as those viewing photographs of unattractive people.
Mixed gender environments increase risk tolerance in both men and women. So adding women to an all male institution increases, likely, the risk that organisation will tolerate. And so does adding men to an all female one. Not just because the men sway the average but because both men and women become more risk tolerant in the presence of the other sex.
Thus it would be correct to say that Lehman Sisters would have been less risk tolerant than Lehman Brothers. But the reality of what there actually was at the firm was that it was a mixed gender environment and so more risk tolerant than either of the single gender hypotheticals would have been. It is gender diversity itself that increases risk tolerance, reduces risk aversion.
Which leads to an interesting thought. Everyone generally agrees that banking as a whole has become more risk tolerant, and thus more fragile, in recent decades. These are also the decades when women have made significant inroads into that area of professional life. Which leaves us with something of a conundrum. We generally believe that fragility in the banking system is a bad idea. We also all generally believe that gender equality is a good idea. But that gender equality of women going into finance and banking seems to increase the fragility of the system given that rise in risk tolerance from a mixed gender environment.
At which point we probably have to choose: which is the item of greater value to us? Myself I'd come down on the side of freedom and liberty, as I generally do. That women get to decide what they want to do with their lives is of much greater importance than that the banking system becomes more fragile. So, therefore, we just have to put up with the greater risk tolerance of the system on the grounds of simple civil liberty. But I can see that some won't be all that happy with that conclusion.
