August 2005-August 2006

Risk Taking and Financial Decision Making in Older Adults

Researchers

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George Loewenstein
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Brian Knutson
Stanford
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Camelia Kuhnen
Stanford
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Gregory Larkin
Stanford

Given that many decisions (such as choosing a stock in which to invest) involve high level cognitive processing, performance deficits in older adults may result from cognitive decline, but affective influences might also play a role. A study of performance on a dynamic investment game in younger and older adults reveals that older adults are not impaired on single trial choices, but are less able to explicitly identify optimal assets at the end of a block. However, neither younger nor older adults show a significant tendency toward a higher ratio of risk-seeking or risk-aversion mistakes. Further, end-block asset choices correlated with performance on neuropsychological measures, whereas risky individual trial choices correlated with individual difference measures related to trait affect. The results showed that intact affective signals and declines in certain aspects of cognitive ability in older adults may affect different aspects of financial decision making. These findings illuminate underlying components of financial decision making over the life span, and may foster the development of strategies that help adults to make optimal financial decisions in late life, as well as inform policy decisions on retirement and investment accounts.

This study is a seed project for the Center on Advancing Decision Making for Aging.