Better Economic Decisions from Older People

The experience and knowledge of the older lot from a lifetime of decision making makes them wiser and helps them take better decisions with regard to finances.

Ye Li, the UC Riverside assistant professor, and Martine Baldassi, Eric J. Johnson and Elke U. Weber, recruited a group of 336 people - 173 younger (ages 18 to 29) and 163 older (ages 60 to 82) - and asked them a series of questions that measured economic decision making traits.

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They also administered a battery of standard fluid and crystallized intelligence tests.

Fluid intelligence is the ability to learn and process information.

Crystallized intelligence refers to experience and accumulated knowledge.

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These traits included temporal discounting (how much people discount future gains and losses), loss aversion (how much the valuation of losses outweigh gains of the same magnitude), financial literacy (understanding financial information and decisions) and debt literacy (understanding debt contracts and interest rates).

They found the older participants performed as well or better than the younger participants in all four decision-making measures.

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The older group exhibited greater patience in temporal discounting and better financial and debt literacy. The older participants were somewhat less loss averse, but the result did not reach standard levels of significance.

The study has been published in the journal Psychology and Aging.