A recent study* into investment behaviour by Stephan Siegel of Arizona State University’s WP Carey School of Business, and Henrik Cronqvist of Claremont McKenna College, illuminates the role that genes play in determining investment decisions.
The authors examine the investment behaviour of 15,208 pairs of Swedish twins, using data from the country’s twin registry and its tax authority, which until 2007 kept records on every financial transaction. Controlling for various factors, they find that identical twins, who share all their genes, were more similar in their investing behaviour than fraternal twins, who share about half their genes.
The authors calculate that genetic factors account for between a quarter and half of the variations in irrational investment behaviour between individuals. These factors are at work across more dimensions than just investing.
Twins who showed a bias towards buying familiar shares rather than unknown ones, for example, also showed a preference for living closer to their place of birth and for marrying a spouse from the same region.
If genes explain up to a half of the variations in investment behaviour, what governs the rest? The authors also calculated the impact of shared environmental influences on the twins as well as the effect of experiences unique to one half of a twin pair. Common childhood experiences like schooling were found to have almost no influence on investment behaviour. But individual experiences explain half of the variations between twin pairs—as much as, and often more than, genes.
However, the study called "Why Do Individuals Exhibit Investment Biases?”, February 2012, has its limitations since it looks at data from only one country during a limited period of time.
adapted from The Economist
