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July 26, 2010

Saving is heritable, but culture matters a lot

Filed under: Behavior Finance,Behavior Genetics,Finance — Razib Khan @ 9:58 am

The nature and character of your financial decisions is shaped by your genes. That shouldn’t be too horrible. Many decisions are the outcome of a combination of heritable and non-heritable predispositions. But I have to honestly express a bit of alarm at this segment I just heard on Marketplace, There’s only so much you can teach your kids. Here’s the subhead:

For better or for worse, kids take after their parents — but studies show parental influence only goes so far when it comes to how your children will handle money.

I’m not one to be worried about “genetic determinism” (usually just an insult which describes very few scholars), but this is a bit ridiculous. First, the primary research, of which you can find a pre-print online, seems to indicate that around ~30% of the outcome of financial decisions are heritable. That is, that ~30% of the variation in financial decisions within the population can be accounted for by variation in genes within the population. Additionally, there’s some context missing. The researcher expresses surprise that monozygotic twins converge in behavior as they age, and that parental influence tends to wear off as people leave the home. I don’t know if the researcher was taken out of context, but this is a totally unsurprising result. Over time shared home environment, what your parents model and teach you, tends to wear off, and gene-environment correlation increases the correspondences between particular genetic makeups and behaviors (i.e., identical twins resemble each other more at maturity than in their youth). For most behavioral traits heritability increases with age.

But the problem that microeconomic analyses like this create is that they confuse the public as to the relevance of charts such as this:


personal-savings-rate

That’s the median savings rate in the USA.

There’s not enough time to explain this sort of volatility as the result of changes in gene frequencies. Some of the trends, as the recent increase in savings, have easy contextual explanations. The point is that individual dispositions express themselves within an environmental context, and culture is such an environment. This is why we have to be careful about the high heritabilities of obesity. Your genes may indicate how high your masts are going to be in the flotilla, but the rising and falling of the tide are going to have a huge absolute impact on the position of the whole constellation of ships.

Image Credit: Wikimedia

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