As everyone knows, the most competent people at literally any business endeavor are men. And, of course, attractive men are much better at everything than their less-attractive, and probably shorter, counterparts. Because physical appeal and gender are clear predictors of being great at everything, investors consider startup pitches from men -- particularly good-looking men -- overwhelmingly worth investing in, even when women gave the exact same pitch, according to a study published Monday.
Researchers from Harvard Business School, the Wharton School and MIT Sloan School ran three experiments to tease out gender and attractiveness bias in the venture capital funding of entrepreneurs in a study published in this week's Proceedings of the National Academy of Sciences, or PNAS. The study is called "Investors prefer entrepreneurial ventures pitched by attractive men."
Women tend toward entrepreneurial activity at only half the rate of men in the United States, according to one report cited by the PNAS-published study. Yet women-led ventures have received only 7 percent of all venture funds.
The basis for snagging venture capital funds is typically a verbal presentation known as a pitch. Researchers conducted three experiments to examine the impact of gender and attractiveness on the success of some of those pitches.
Study No. 1
The first study looked at competitions where hopeful entrepreneurs pitch to judges. "Male entrepreneurs were 60 percent more likely to achieve pitch competition success than were female entrepreneurs," the study reports. Attractiveness boosted men's chance of pitch success by 36 percent.
Study No. 2
The second study showed participants two different videos of a pitch for funding. The videos did not show the narrator. Each video was narrated twice, by a man and a woman reading identical scripts. Videos were randomly assigned. The study participants had extra incentive to choose the best business because they got paid for picking the business that would perform the best, as judged by a panel of experts.
Sixty-eight percent of participants chose the male voice and about 32 percent chose the female voice, for the same business with the exact same script.
Study No. 3
The third study gauged the impact of attractiveness on investments. The setup was similar to the second study, but participants watched one video instead of two and were asked to rate how likely they were to invest, on a scale of 1 to 7, with 7 being very likely to invest. A photo of the male or female entrepreneur was shown with the video. The images varied among pictures that scored high on attractiveness or low on attractiveness in a separate experiment.
The highly attractive male entrepreneur garnered an average rating of 5.21; the not-attractive man got a rating of 4.59. Attractive and unattractive female entrepreneurs did worse at ratings of 4.14 and 4.35, respectively.
In studies two and three, the script for the pitches was held constant, whether it was read by a man or a woman. Yet the male voice was rated as more persuasive, logical and fact-based than the female voice.
Seems like a clear case of bias, right? The researchers conclude, unfortunately, that maybe the participant-investors were acting rationally.
In the same way that participants in the classic Keynesian beauty contest game were asked to choose the most popular (rather than the most beautiful) contestant, investors may rationally seek to invest in male-led ventures that other investors and future customers are most likely to prefer. ...
If discrimination arises along the entire growth path of female-led ventures, then early stage investors may rationally seek to avoid such investments.
In 1936, John Maynard Keynes compared the stock market to a newspaper contest where readers could vote for the six prettiest women out of a series of photographs. The reader who picked the closest approximation to the average votes won a prize. So instead of picking the six prettiest women in their own opinion, people hoping for a prize would try to guess which pictures other people think are the prettiest, according to Keynes.
If everyone thinks that everyone else thinks that women are less competent business leaders or that women business leaders are more likely to be discriminated against, their businesses are more likely to fail. So why give them money?
What do you think? Are men better entrepreneurs or does everyone think that everyone else thinks that men are better at business?
It's not just a gender studies conundrum; allocating capital to its highest value use is important for the economy and for wage and job growth. Is giving money to hot guys because we perceive them as more logical really the best use of investment capital?
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Senior investing reporter Sheyna Steiner is a co-author of "Future Millionaires' Guidebook," an e-book written by Bankrate editors and reporters. It's available at all the major e-book retailers.