Don't make financial decisions during old age

We expect some decline in cognitive ability as we enter our golden years but we don’t necessarily expect that decline to specifically impact decision making. Yet, according to researchers led by Agnieszka Tymula of the University of Sydney, late in life we have a diminished ability to make rational choices, at least when it comes to our finances.

The scientists recruited 135 cognitively heathy subjects in four different age groups: 12-17 (adolescents), 21-25 (young adults), 30-50 (midlife adults) and 65-90 (older adults). Each volunteer provided a detailed profile that included his personal financial and psychological history. The subjects were then put through a series of trials in which they stood to gain or lose money, depending on their choices.

In ‘gain trials’, participants had to choose between taking a sure $5 or playing the lottery for differing amounts. In ‘loss trials’, people could lose $5 or play the lottery to lose more or less. For example, in a gain trial, the subject could pocket the $5 or take equal odds on getting either $0 or $8. Each volunteer played a total of 320 of these games.

Some of these choices should have been no-brainers. If you have a choice between getting a sure $5 and playing the lottery to win a possible $5, of course you should take the sure thing. You have nothing to gain by gambling. In converse, if you have a choice between losing $5 and playing a lottery to lose either $5 or nothing, you should take your chances with the lottery. Not surprisingly, people don’t always make the rational choice in these cases. What was surprising was that that the percentage of people deviating from the right decision was highest amongst older adults. Nearly a quarter of them chose poorly, compared to 10% of adolescents and 5% of young or midlife adults. Because of poor choices, older adults ended up earning a little more than half as much as people in the other age ranges. 

The older adults weren’t just worse at making decisions, they were also more inconsistent. When replaying the exact same scenarios, older adults were more likely to make a different choice each time than were younger people. The second most inconsistent cohort were the adolescents. Interestingly, these two groups (older adults and adolescents) also exhibited the most innumeracy, which also correlated with making inconsistent and wrong choices.

The moral of this story is that the average person should probably make the bulk of his important financial decisions between the ages of 21 and 64. However, the authors are quick to point out that this was a small study and should not be the basis for any individual or political policy changes. 


Agnieszka Tymula, Lior A. Rosenberg Belmakerb, Lital Ruderman, Paul W. Glimcher, & Ifat Levyb (2013). Like cognitive function, decision making across the life span shows profound age-related changes Proceedings of the National Academy of Sciences of the United States of America DOI: 10.1073/pnas.1309909110.