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Age Effects and Heuristics in Decision Making

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  • Tibor Besedeš

    (Georgia Institute of Technology)

  • Cary Deck

    (University of Arkansas and ESI, Chapman University)

  • Sudipta Sarangi

    (Louisiana State University and DIW Berlin)

  • Mikhael Shor

    (University of Connecticut)

Abstract

Using controlled experiments, we examine how individuals make choices when faced with multiple options. Choice tasks are designed to mimic the selection of health insurance, prescription drug, or retirement savings plans. In our experiment, available options can be objectively ranked, allowing us to examine optimal decision making. First, the probability of a person selecting the optimal option declines as the number of options increases, with the decline being more pronounced for older subjects. Second, heuristics differ by age, with older subjects relying more on suboptimal decision rules. In a heuristics validation experiment, older subjects make worse decisions than younger subjects. © 2012 The President and Fellows of Harvard College and the Massachusetts Institute of Technology.

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Bibliographic Info

Article provided by MIT Press in its journal Review of Economics and Statistics.

Volume (Year): 94 (2012)
Issue (Month): 2 (May)
Pages: 580-595

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Handle: RePEc:tpr:restat:v:94:y:2012:i:2:p:580-595

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Related research

Keywords: experiments; decision making; optimal choice; age effects; heuristics;

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References

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  1. Kahneman, Daniel & Tversky, Amos, 1979. "Prospect Theory: An Analysis of Decision under Risk," Econometrica, Econometric Society, Econometric Society, vol. 47(2), pages 263-91, March.
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  3. Kovalchik, Stephanie & Camerer, Colin F. & Grether, David M. & Plott, Charles R. & Allman, John M., 2003. "Aging and decision making: A comparison between neurologically healthy elderly and young individuals," Working Papers, California Institute of Technology, Division of the Humanities and Social Sciences 1180, California Institute of Technology, Division of the Humanities and Social Sciences.
  4. Cole, Catherine A & Balasubramanian, Siva K, 1993. " Age Differences in Consumers' Search for Information: Public Policy Implications," Journal of Consumer Research, University of Chicago Press, University of Chicago Press, vol. 20(1), pages 157-69, June.
  5. Florian Heiss & Daniel McFadden & Joachim Winter, 2007. "Mind the Gap! Consumer Perceptions and Choices of Medicare Part D Prescription Drug Plans," NBER Working Papers 13627, National Bureau of Economic Research, Inc.
  6. Richard G. Frank, 2004. "Behavioral Economics and Health Economics," NBER Working Papers 10881, National Bureau of Economic Research, Inc.
  7. Keeney,Ralph L. & Raiffa,Howard, 1993. "Decisions with Multiple Objectives," Cambridge Books, Cambridge University Press, Cambridge University Press, number 9780521438834.
  8. Esther Dufluo & Emmanuel Saez, 2003. "The role of information and social interactions in retirement plan decisions: Evidence from a randomized experiment," Framed Field Experiments, The Field Experiments Website 00141, The Field Experiments Website.
  9. Colin F. Camerer & Howard Kunreuther, 1989. "Decision processes for low probability events: Policy implications," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., John Wiley & Sons, Ltd., vol. 8(4), pages 565-592.
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Cited by:
  1. Besedeš, Tibor & Deck, Cary & Sarangi, Sudipta & Shor, Mikhael, 2012. "Decision-making strategies and performance among seniors," Journal of Economic Behavior & Organization, Elsevier, Elsevier, vol. 81(2), pages 524-533.
  2. Berger, Allen N. & Kick, Thomas & Schaeck, Klaus, 2012. "Executive board composition and bank risk taking," Discussion Papers, Deutsche Bundesbank, Research Centre 03/2012, Deutsche Bundesbank, Research Centre.
  3. Madiès, Thierry & Villeval, Marie Claire & Wasmer, Malgorzata, 2013. "Intergenerational attitudes towards strategic uncertainty and competition: A field experiment in a Swiss bank," European Economic Review, Elsevier, Elsevier, vol. 61(C), pages 153-168.
  4. Besedes, Tibor & Deck, Cary & Quintanar, Sarah & Sarangi, Sudipta & Shor, Mikhael, 2011. "Free-Riding and Performance in Collaborative and Non-Collaborative Groups," MPRA Paper 33948, University Library of Munich, Germany.
  5. Florian Heiss & Adam Leive & Daniel McFadden & Joachim Winter, 2012. "Plan Selection in Medicare Part D: Evidence from Administrative Data," NBER Working Papers 18166, National Bureau of Economic Research, Inc.
  6. Barrutia Legarreta, José María & Espinosa Alejos, María Paz, 2012. "Consumer Expertise or Credit Risk? An empirical analysis of mortgage pricing," DFAEII Working Papers 2012-04, University of the Basque Country - Department of Foundations of Economic Analysis II.
  7. Besedes, Tibor & Deck, Cary & Sarangi, Sudipta & Shor, Mikhael, 2012. "Designing a sequential choice architecture to reduce choice overload," MPRA Paper 38173, University Library of Munich, Germany.

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