Fat Cats Are Actually Slim

Investing in the stock market is one way that rich people grow their assets more rapidly than others opening up huge wealth inequality. New research in the journal Management Science⁽¹⁾ finds that people who are slim and tall are significantly more likely to buy stocks. What are psychologists to make of this?

Just a Correlation?

The obvious response is to say that this is just correlation but there may be more to it even though these are not very strong correlations, accounting for less than a tenth of the differences in stock ownership. So why might stock investors be tall? Why would they be slim?

Researchers were careful to control for possible confounding variables, such as wealth. Rich people tend to be taller and thinner than average, thanks, in part to better prenatal nutrition. Rich people are more likely to invest in the stock market because they have more spare cash lying around that can be invested in stock, or other investments. So the researchers controlled for income and other possible confounds.

It is always possible that the researchers missed something, of course, but previous research makes it likely that there is a meaningful relationship between body build and business risk-taking. For instance, more effective managers are also relatively tall and slim, i.e., have a low body mass index⁽¹⁾.

Height, Intelligence and Work Motivation

The relationship between height and success is quite complex. Taller individuals are better paid and the most satisfactory explanation for this phenomenon delves into the prenatal environment. People who are taller, and slimmer, are generally better nourished in the womb and throughout childhood that sets them up for social, and academic advantages later in life⁽²⁾. In particular, they score higher on IQ tests, are motivated to work harder, and consequently earn more⁽³⁾. Conversely, prenatal starvation favors increased storage of body fat and is a risk factor for obesity, academic problems, and low earning potential.

From this perspective, the propensity of slim (and tall) people to participate in risky, but generally lucrative, investments such as the stock market is just one small ramification of a privileged early life.

Fat Cats Better Educated (and White)

Stock owners are more likely to be slim, but why? The Management Science article⁽¹⁾ identifies two key factors explaining much of this relationship. One is education: People who invest in the stock market tend to be better educated. This is no great surprise given that investment decisions involve complex choices that are made more easily by well-educated individuals. The other is race: Those who are white own more stocks. This is likely due to the fact that ethnic minorities in the U.S. and Europe (from whence the data derives) have less wealth.

Tall People More Popular and Willing to Take Risks

Complex as the explanation for overweight people being lower on stock ownership is, the researchers provide evidence for an even more elaborate interpretation of the connection between height and stock market participation. They examined data on popularity in adolescence.

Being tall is a social advantage, particularly for men whose height enhances sexual attractiveness. Taller people are more popular as adolescents. That popularity may increase their confidence and willingness to take risks.

So fat cats who grow their assets in the stock market are actually taller and slimmer. Some people have all the luck!

Sources

¹ Addoum, J. M., Korniotis, G/., & Kumar, A. (2016).Stature, obesity and portfolio choice. Management Science. Published online in Articles in Advance, 01 August 2016. http://dx.doi.org/10.1287/mnsc.2016.2508

² Floud, R., Fogel, R. W., Harris, B., & Hong, S. C. (2011). The changing body: Health, nutrition, and human development in the Western world since 1700. Cambridge, England: NBER/Cambridge University Press.

³ Case, A. & Paxson, C. (2008). Stature and status: Height, ability and labour market outcomes. Journal of Political Economy, 116, 491-532.