Older adults are more likely to make poor financial decisions and inconsistent choices than any other age group, a new study by researchers at University of Sydney, New York University and Yale’s School of Medicine has found.
The results, published today in the Proceedings of the National Academy of Sciences, indicate for the first time that decision-making abilities, alongside other cognitive abilities such as motor skills and memory, might also decline with age.
Dr Agnieszka Tymula from the University of Sydney’s School of Economics and her colleagues examined differences in decision-making among healthy participants ranging from 12 to 90 years old. They focused on choice consistency, rationality, and the individuals’ preferences for known and unknown risks.
A detailed socioeconomic profile was obtained for each participant, including education, IQ and wealth information, and relevant medical history. The experiment asked participants to make a series of financial decisions, choosing between options that carried different levels of risk and reward (ranging from $5 to $125).
"Older people (over 65 years old) were much more likely to be inconsistent in their decisions," Dr Tymula said.
The authors found that even healthy adults aged 65 and older who have numeracy and IQ skills on par with younger study participants make strikingly inconsistent and irrational choices compared with their younger peers, revealing seeming losses in the ability to make rational choices not unlike other well-documented age-related declines.
"We were surprised by the results. The fact that older adults were really at their peak of performance in terms of IQ scores and still showed such decline in choice consistency and rationality is really worrying," Dr Tymula said.
Such mistakes led to large discrepancies in overall earnings across all age groups in the study, with older adults achieving around 39 percent less than the expected earnings of young (aged 21 to 25) and midlife (aged 30 to 50) adults.
In addition, researchers found that elders and adolescents are more risk averse than their midlife counterparts, with older adults the most risk-seeking group of all.
Dr Tymula said the results have implications for how older people make important decisions, and may account in part for the high number of elderly people facing problem-gambling or falling victim to online scams. "It’s also important when considering retirement plan choices," she said.
"If we found that older people make less money because their preferences for risk were different, I’d say leave it as it is," said Dr Tymula.
"But, since we see that they make more mistakes and are more inconsistent, policy intervention that can help older people maintain rationality and consistency would be desirable."
The study, titled Like cognitive function, decision-making across the lifespan shows profound age-related changes was conducted by Dr Tymula, Lior A. Rosenberg Belmaker, Lital Ruderman and Ifat Levy from Yale University, and Paul Glimcher from New York University.The study was supported by a grant from the National Institute on Aging, part of the U.S National Institutes of Health.