The brains of older people are slowing but experience more than makes
up for the decline, a University of California, Riverside assistant
professor of management and several colleagues found when asking the
participants a series of financially related questions.
Ye Li,
the UC Riverside assistant professor, and Martine Baldassi, Eric J.
Johnson and Elke U. Weber, all currently or formerly of Columbia
University, outlined the results in a paper, “Complementary Cognitive Capabilities: Economic Decision Making, and Aging,” which was just published in the journal Psychology and Aging.
The study is believed to be the first to measure decision making over
the lifespan through the lens of two types of intelligence: fluid and
crystallized. Fluid intelligence is the ability to learn and process
information. Crystallized intelligence refers to experience and
accumulated knowledge.
Past research has found fluid intelligence declines with age, but
provides no definitive conclusion as to whether decision-making
abilities declines as people age. Li, a faculty member at UC Riverside’s
School of Business Administration, and his colleagues set out to answer that question.
Their work has broad implications. As the average age of the world’s
population rises rapidly, understanding how and how well older adults
make decisions is crucial because they are faced with an increasing
number of important choices related to their retirement finances and
health care. Furthermore, as new laws increase the minimum retirement
age, people remain professionally active later in life, with older
adults holding many key leadership roles.
To conduct their research, Li and his colleagues 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. They also administered a battery of standard fluid and
crystallized intelligence tests.
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. 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 findings confirm our hypothesis that experience and acquired
knowledge from a lifetime of decision making offset the declining
ability to learn new information,” Li said.
The findings also support the fact that older people could be further
helped by being provided aids to ease the burden on their decreased
fluid intelligence, such as a calculator or advisor, when making
significant financial decisions, Li said. On the other hand, younger
adults may benefit from more financial education so that they can gain
experience with major financial decisions before making them in the real
world.
Li and several of his colleagues who co-authored the Psychology and
Aging paper are working on a follow-up project that asks adults ranging
from 18 to 80 specific questions about decisions such as selecting a
health care policy, when to start drawing Social Security and how to pay
off multiple credit card balances.
Source:UCR Today