Stupid old people

Older people make worse decisions under risk than younger ones. That’s the finding of this new paper (pdf).
Researchers asked subjects to choose some bets with known payoffs. And they found that whereas 52% of under-40s made the right choice - in terms of maximizing expected payoffs - only 32% of over 60s did so.
In particular, older people were more likely to do worse as the number of bets they were asked to choose from increased. They were more bewildered when confronted with greater choice.
Also, older folk were more likely to do worse when the stakes were higher. They are more likely to be on the right part of the Yerkes-Dodson curve.
One reason for wrinklies’ poorer performance is that they use a misleading heuristic. They are attracted to things that offer more attributes, but blind to the value of those attributes. So, for example, they might prefer a bet that pays off in states A, B or C to one that pays off in states D and E, even if D or E are more likely than A, B or C.
What this research doesn’t tell us is whether this is an age effect (as we get older, we get stupider) or a cohort effect (people born 60 years ago are stupider than those born 40 years ago.) The Flynn effect suggests the latter. However, this research suggests it might be the former, as does evidence from "real world" financial decision-making, which suggests that performance deteriorates from the mid-50s onwards. 
Whatever, this has an interesting implication. It suggests that “nudge”-style policies - “liberal paternalistic” efforts to help people choose better by framing their options - might be more appropriate for older people than younger ones.
Richard Thaler is 63. 

Comments

[Clive King]

A big differences exists between "making a decision" and "ensuring the right decision is made". I expect the optimal for the later is higher, but that is just my conjecture.

At an average age of 56 (2005 50.6 + 5), is it time to move most of the current MP's off to the Lords which was intended to be there to ensure the right decision is made.

[Matt]

Perhaps older people have come to realise that there's a whole bunch of more important things in life than economics, so just didn't care enough to think about "maximizing expected payoffs". I know I wouldn't!

[dearieme]

Could be; could very well be. But as usual in "Social Science" you only have to look at how they recruited their sample to see that there is no good reason to accept that it is representative. None; nil.

[BenP]

Now what might be the reason securing a pension or getting health cover is so complicated that less than half made the "optimal" choice. It's as if there's a scam going on...

[connex]

What about the last global crisis. Do you know any data if the old or young professional caused the crisis

[Frank H Little]

I would like to have seen the 18-40 group broken down further. It seems to me that there would be different levels of performance by under- and over-25s.

[tbrrob]

Mr Buffet has clearly suffered from this problem...

[john problem]

I take offence at this slur on we older people. Remember we are now a big voting block. We can march on Westminster and demand an increase in the pension! (Which, incidentally, is the lowest in Europe). When our leaders talk to us about feeling our pain, we can talk to them about our hips. When they talk about their wonderful future we can tell them to belt up. When they come asking for our votes we can say 'Yes, if we get a £500 a week food allowance like you.' Our leaders will die of shame when the whole nation of OAPs marches round Westminster - and bloody good riddance to the whole bunch of 'em. Never known a drop of sweat on their brows, the ponces. Whoops, sorry, beginning to rant. Anyway join 'The Angry Old Age Pensioners Party' today and make Britain great again!

[chris]

@tbrrob - you're making a common error here. I'm not claiming that the correlation between age and cognitive disfunction is 1.0. So individual data points don't refute my claim, which is about differences between averages.
@ Dearime - the Agarwal et al paper I link to corroborates the laboratory evidence, which suggests the latter might not be too unrepresentative.
Pushed to an extreme, your scepticism rules out any evidence in social science. Laboratory experiments suffer from small sample problems, among others, whilst "real world" examples are subject to the Duhem-Quine problem.
But surely - used properly - either is better than prejudice and anecdote.

[DiRadical]

I read recently that the Flynn effect does not occur anymore. At least in the UK, where the IQ dropped in the last 30 years.
It was a 2 point drop.

http://www.telegraph.co.uk/education/educationnews/4548943/British-teenagers-have-lower-IQs-than-their-counterparts-did-30-years-ago.html

[Innocent Abroad]

So all those people who are calling for the retirement age to be scrapped are really demanding a stupider workforce?

Mind you, I probably have this all wrong. I get my bus pass next moth...

[Tag Heuer replica]

And a lot of it reflects a switch from bank deposits to securities; foreigners “other investments” in the UK, http://www.watchgy.com/ mostly bank deposits, fell by £143.2bn in Q1. And of course there’s no guarantee such buying will continue.
http://www.watchgy.com/tag-heuer-c-24.html
http://www.watchgy.com/rolex-submariner-c-8.html