The University of Texas at Austin
  • Research shows height may be predictor of financial success

    By Rob Meyer for McCombs Today
    Rob Meyer for McCombs Today
    Published: Dec. 15, 2009
    Research

    Alok Kumar is an assistant professor of finance at the McCombs School of Business. His research was featured in the McCombs Today blog.

    The idea of free will has taken a beating in the last few decades. It seems every day scientists are providing further evidence that all behavior can be explained by an equation of genetics and environmental factors that adds up to one subconscious bias or another.

    For example, if ascending to the helm of a major corporation is the result of an individual’s intelligence, hard work, vision and the ability to motivate others, then there shouldn’t be the glaring fact that you have a better chance at becoming a CEO if you are tall. In his book “Blink” Malcolm Gladwell shared this stat with his readers: “In the U.S. population, about 14.5 percent of all men are six feet or over. Among CEOs of Fortune 500 companies, that number is 58 percent.”

    The CEO phenomenon suggests that people favor tall people. And research has shown that in general tall people, well, have better lives. They are more likely to be more optimistic, healthier and have stronger social networks. It is a result of all of the love and attention paid to them starting from early childhood.

    Adding to this growing research, Alok Kumar, assistant professor of finance at the McCombs School of Business, recently completed a study which demonstrates for the first time how height also can be a predictor of how somebody manages money.

    “The effect of height on your financial decisions is second only to wealth,” Kumar said. “It is known that wealthier people will hold riskier assets and take more chances. Some have thought that after wealth, age or education would be the next-best predictor. Height beats all of those. That to me was quite surprising.”

    The paper, which uses data from several European countries as well as the U.S., finds the tendency to participate in the stock market is about 15 percent higher for tall individuals. “That is a big result,” Kumar said.

    The research, co-authored by George Korniotis, also finds that when tall people take part in the stock market, they will pick riskier securities and mutual funds. In addition, they are more likely to be entrepreneurs.

    As for investment returns, their data set didn’t include performance. However, Kumar said that other aspects of the data points to prudent rather than reckless behavior.

    “Taller people take more risks, but not too much risk,” Kumar said. “So they are judicious risk takers.”

    Two other findings from the paper would seem common sensical. One, that the risk effect is less pronounced in tall women, and two, it gets reversed for the very tall.

    In any case, height really isn’t the main focus of the paper. Instead, Kumar said, height is essentially a proxy for all of the other life experiences that one expects to have if they are tall.

    “Height is capturing what kind of environment you are surrounded with from an early age,” Kumar said. “For example someone pats you on the back as a child, offers reinforcement. Small things can lead to better self-confidence, self-esteem — all the things that are associated with being tall.”

    In previous studies, Kumar has shown that where you live, your age, your religion and even whether or not you gamble play a key role in how individual investors choose stocks. Kumar said that if you are aware of your biases, you might be able to counterbalance them. You could consider that free will.

    “My general feeling is that left to themselves, people would not make the best financial decisions,” Kumar said. “Most people don’t even recognize their biases. They should at least be aware. For example, if I’m taller maybe I should recognize that I might be taking more risks.”

    The ultimate goal for Kumar, as with other academics doing research in the area of behavioral economics, is to better understand how markets work. “But we first need to understand micro-level behavior,” he said.

    “Traditional finance says behavior of individual investors is canceled out when you look at the entire market,” Kumar said. “This would be true if there were random deviations from expected behavior. However, we are learning that some are systematic with many individuals making similar mistakes at the same time, and thus the effect of those mistakes is amplified.”

    • Quote 2
      Sharelord review said on April 16, 2011 at 2:00 a.m.
      Good job.. According to me you made some very good points in your post Its really informative..
    • Quote 2
      Gordon said on Oct. 4, 2010 at 2:32 p.m.
      It is very interesting how you combined reports and statistical data about how certain behavior correlates to tall people. I am 6,2 feet and I was really overjoyed to find out that 58% of fortune 500 CEO's are over 6 feet. Later when you wrote about money management I thought, just don't tell me the study shown that we are good with money, but the study shows that tall people are more risk takers when it comes to dealing with money. That's just like me. It makes me wonder if there is any actual free will on our part or our core behavior is pre-written in our genetic material? Anyhow I really enjoyed reading this article. It got me interested into, the term I first read today, "micro-level behavior". This is as close as you can get to Socrates famous "Know thyself" life philosophy
    • Quote 2
      Be In The Know said on Dec. 18, 2009 at 5:58 p.m.
      [...] Read about McCombs Professor Alok Kumar’s research into how height can predict financial decisions. Read more. [...]
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