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Money choices less rational as you age

Irrational decisions People over 65, even those with high IQ and numeracy skills, are more likely to make irrational and inconsistent financial decisions, new research has found.

Dr Agnieszka Tymula of the University of Sydney, and colleagues at New York University and Yale's School of Medicine, report their findings today in the journal Proceedings of the National Academy of Sciences

"The older people who participated in our study were much more irrational and much less consistent in their choices," says Tymula, an economist, interested in studying how people make decisions.

While cognitive abilities such as motor skills and memory decline as we age, little is known about how decision-making changes with age.

To investigate attitudes towards risk, as well as consistency and rationality in decision-making, Tymula and colleagues carried out a study involving 130 healthy people aged 12 to 90.

A medical history and socioeconomic profile was obtained for each participant, including information on their education, wealth, IQ and numeracy skills.

Each participant was asked to make a range of financial decisions, choosing between two options that carried different risk and reward (ranging from $5 to $125).

For example, they were asked if they would like to have $5 or play a lottery where there was a chance to win $25.

Each participant faced the choices in random order, and choices were repeated throughout the study, which enabled the researchers to look at whether the person consistently chose the same option when faced with the same choices.

The researchers also looked at rationality, by asking people to make a choice between one option that was definitely better than the other: For example by asking them if they would like $5 or gamble on the chance of getting $5.

Surprising findings

Tymula and colleagues were "stunned" by the findings.

Despite having IQ and numeracy skills on par with younger people, the older people were more irrational and inconsistent than younger age groups.

"That was really surprising to us," says Tymula.

The mistakes made by the older people resulted in them earning around 39 per cent less than those in younger groups.

Another surprising finding was that under certain circumstances older adults were the most risk-seeking group of all.

Tymula says this increase in irrational and inconsistent choices in older people could be due to changes in the prefrontal cortex, which have been linked to decline in other cognitive functions.

She says the next step is to identify changes in the brain linked to changes in decision-making in older people and to come up with a preventative measures to slow down these changes.

Meanwhile, says Tymula, care should be taken with how such things as pension choices and health insurance choices are presented to older adults.

"These are all decisions that have probabilistic consequences and where older adults are at higher risk of making mistakes."