Sources of Lower Financial Decision-Making Ability at Older Ages

Kariv, Shachar; Silverman, Dan

doi:10.2139/ssrn.2745983

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Sources of Lower Financial Decision-Making Ability at Older Ages

Michigan Retirement Research Center Research Paper No. 335

33 Pages Posted: 12 Mar 2016

See all articles by Shachar Kariv

Shachar Kariv

University of California, Berkeley - Department of Economics

Dan Silverman

University of Michigan at Ann Arbor - Economics Department; National Bureau of Economic Research (NBER)

Date Written: November 2015

Abstract

After middle age, further aging is associated with lower levels of many cognitive abilities, some of which could influence import economic decisions. Our prior research (Choi et al., 2014) shows a substantial negative relationship between age and the consistency of choices with economic rationality (decisionmaking quality). This paper investigates the sources of that negative correlation using panel data on more than 4,000 members of a panel study in the Netherlands. The analysis finds no evidence that the correlation between age and rationality is, in fact, a just a cohort, not an age effect. Similarly, there is little evidence that the correlation is due to other forms of cognitive or health declines. Rather, the findings indicate that age has an independent and negative effect on economic rationality.

Keywords: Decision-making quality, rationality, revealed preference, aging

JEL Classification: D01, D02, D03, D04, P43, P46

Suggested Citation: Suggested Citation

Kariv, Shachar and Silverman, Dan, Sources of Lower Financial Decision-Making Ability at Older Ages (November 2015). Michigan Retirement Research Center Research Paper No. 335, Available at SSRN: https://ssrn.com/abstract=2745983 or http://dx.doi.org/10.2139/ssrn.2745983