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.