There is a long-standing question in economic theory as to why people tend to be risk-preferring when facing longshot risks involving significant gains, such as betting on race horses, and on the other hand are risk averse when facing significant losses – buying home or car insurance, for instance. A team of economists and molecular geneticists from the Hebrew University of Jerusalem and two Asian universities say the answer can be found in people’s genetic makeup.

Richard Ebstein, a professor of human genetics at the Hebrew University of Jerusalem, says many economists have struggled with this paradox. Nobel laureate and former Hebrew University psychology Professor Daniel Kahneman and his colleague Amos Tversky explained why people play the lottery and at the same time purchase insurance with their widely accepted prospect theory. But that theory offers a psychological explanation for this economic behavior

Ebstein along with economists at the National University of Singapore and the Hong Kong University of Science and Technology turned to the underlying neurobiological and neurogenetic mechanisms of the behavior. In an article published online in PLoS ONE, Ebstein and his colleagues combined the tools of experimental economics and molecular genetics to examine the role of a well-characterized gene, monoamine oxidase A (MAOA), in predicting whether subjects are more likely to buy the lottery or insurance (or both) under well-controlled laboratory conditions.

In the experiment, 350 Han Chinese subjects were recruited in Beijing and participated in two simple choice tasks, representing proclivities to purchase lottery tickets and insurance, using real monetary incentives.

For example, the subjects were given options to keep a very small cash return upfront, with no risk, or of gambling bigger amounts that they were given upfront but with a minimal chance of actually winning and keeping the money in a lottery drawing. In the second task, concerning insurance, subjects were asked whether or not they would insure a certain but insignificant loss or would take out insurance on a larger amount with a real but low risk of actual loss.

They found that subjects with a high-activity variation of the MAOA gene are characterized by a preference for the longshot lottery and also less insurance purchasing than subjects with the low-activity genetic version. This is the first result to link attitude towards longshot risks to a specific gene. It complements other, recent findings on the neurobiological basis of economic risk taking.

As the world financial system slowly emerges from the near economic meltdown, Ebstein says it is worth considering that inborn biases, coded by common genetic variants, may be a major factor in fueling people's actions regarding longshot options – with concomitant effects on financial markets.