Palm reading, investment edition

Take a look at your left hand, palm facing towards you with your fingers next to each other. Keeping your fingers straight, which finger is longer on the left hand: the index finger or the ring finger? Now do the same with your right hand.

Measure the length of your index finger vs. your ring finger

Source: Finley et al. (2021)

If you are a man, then in about 50% of the cases your index finger will be shorter than your ring finger, in about 25% of the cases, your index finger will be about the same length as your ring finger and in the remaining 25% your index finger will be longer than your ring finger.

If you are a woman, in some 30% of all cases your index finger will be shorter than to your ring finger, in about 25% of the cases they will be roughly the same length and in about 45% of all cases your index finger will be longer than your ring finger.

Now look at the chart below which shows the average willingness to take risks in life in general. People with an index finger that is shorter than the ring finger tend to have a higher willingness to take on risks than people with an index finger longer than the ring finger.

Attitude towards risk taking and length of index vs. ring finger

Source: Finley et al. (2021)

The results above are from a survey of thousands of Americans by Brian Finley, Adriaan Kalwij and Arie Kapteyn. But these are not really new results. This study found that traders with an index finger that is shorter than the ring finger are more successful and stay in their career for longer. And this study showed that people with an index finger shorter than their risk finger are also more prone to follow bubbles and are more likely to be trend-following investors exaggerating market moves.

Huh?

What one needs to know is that the relative length of the index finger vs. the ring finger is determined by the exposure of an embryo in the mother’s body to testosteronev. If an embryo is exposed to more testosterone during its early development, its body and brain cells develop a different sensitivity to these hormonal signals that stays with the person for the rest of his or her life. On the one hand, people exposed to more testosterone tend to build up more muscle mass and have an easier time building muscle mass through workouts and training. So they tend to be better in sports as grownups. Meanwhile, their brains tend to get used to a higher level of testosterone as a base level which means that the body keeps up higher testosterone levels throughout their lives. And because testosterone modulates and influences the fight or flight functions in the brain, people with higher testosterone levels tend to be more aggressive and take more risks in all kinds of domains in life – including investments.