Is Investment Behavior Inherited?

SUZANNE PRATT: Here’s something to think about. Behavioral research has found a similarity between high-risk investors and murders. Specifically, studies claim both murders and high-risk investors may have preprogrammed tendencies carried in their genes. In tonight’s “Your Mind and Your Money” segment, Dan Grech looks at whether behaviors may be inherited and he begins with a history lesson.

DAN GRETCH, NIGHTLY BUSINESS REPORT CORRESPONDENT: Remember Lizzie Borden? She was the central figure in one of the most sensational murder cases in American history — the hacking deaths of her father and stepmother in 1892. Lizzie went on trial for those crimes and the jury found her not guilty. But what if it could be shown that Lizzie Borden was part of a long line of murderers? One of her 21st century relatives is neuroscientist Jim Fallon. He did some research and he found murders on many branches of their family tree.

JAMES FALLON, PROF., SCHOOL OF MEDICINE, U. CALIFORNIA/IRVINE: Our direct great, great — eight times– grandfather apparently killed his mother. But it didn’t stop there, because from that person on — the direct line of Cornell’s — we had seven other murderers.

GRECH: About five years ago, Fallon examined brain scans of his immediate family and he noticed an abnormality in his own brain. It was a pattern that he’d seen before in the brains of psychopathic killers.

FALLON: And this whole area of orbital cortex ventral media cortex and the interior temporal lobe was like shut off — just like these killers. And I held up some of the slides I’d been using of all these different killers that we have this information on and I looked exactly like them.

GRECH: Fallon suspects he may have inherited genes associated with a tendency to commit murder. He thinks that’s just one of many human behaviors built into a person’s genetic profile. Professors Amir Barnea and Henrik Cronqvist have a similar theory.

HENRIK CRONQVIST, ASSOC. PROF, CLAREMONT-MCKENNA COLLEGE: What you do, how you invest your money– that in part is determined by your genes.

GRECH: They think inheriting certain genes can lead an investor to tolerate a certain level of risk.

CRONQVIST: What we are saying is that genetic variation across people can explain how much risk appetite they have. So those that are born with more appetite for risk, they end up also with portfolios that have more equity exposure and more risk and more volatility.

GRECH: Barnea and Cronqvist studied the records of nearly 35,000 twins in Sweden. They found amazing similarities in the investment styles of identical twins, even those who were raised apart.

AMIR BARNEA, ASST. PROFESSOR, FINANCIAL ECONOMICS, CLAREMONT MCKENNA COLLEGE: So basically what you see in this graph is three different investment behaviors: stock market participation, the share or the percentage of one’s portfolio invested in risky assets and the third one is the volatility of one’s portfolio. And the green column is the one that shows the correlation amongst pairs of identical twins. You can clearly see from the graphs the correlation among the identical twins is much larger than that of fraternal twins.

GRECH: Barnea and Cronqvist believe that genetics account for anywhere between a third and nearly half of a person’s investment temperament, which raises the question: if you’re preprogrammed to act in a certain way, can you overcome your natural tendencies? Perhaps. Jim Fallon notes that even though he shares genetic traits with murderers, he hasn’t killed anyone. He says that could reflect nurturing factors like a good childhood or it could just reflect his own personality.

FALLON: And so I think there may be coping mechanisms that are there. It wasn’t like I was trying to build them, but I think they naturally so I wouldn’t blow up.

GRECH: So if you’re guilty of bad investment practices, don’t automatically blame your parents. Experts say by being aware of the right and wrong way to manage your money, you can keep those evil investment impulses locked up. Dan Grech, NIGHTLY BUSINESS REPORT, Miami.

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