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Age Effects and Heuristics in Decision Making

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  • Tibor Besedes
  • Cary Deck
  • Sudipta Sarangi
  • Mikhael Shor

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.

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File URL: http://www.diw.de/documents/publikationen/73/diw_01.c.359331.de/dp1047.pdf
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Bibliographic Info

Paper provided by DIW Berlin, German Institute for Economic Research in its series Discussion Papers of DIW Berlin with number 1047.

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Length: 32 , Anh. p.
Date of creation: 2010
Date of revision:
Handle: RePEc:diw:diwwpp:dp1047

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

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References

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  1. Esther Duflo & Emmanuel Saez, 2003. "The Role Of Information And Social Interactions In Retirement Plan Decisions: Evidence From A Randomized Experiment," The Quarterly Journal of Economics, MIT Press, vol. 118(3), pages 815-842, August.
  2. 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 1180, California Institute of Technology, Division of the Humanities and Social Sciences.
  3. Kahneman, Daniel & Tversky, Amos, 1979. "Prospect Theory: An Analysis of Decision under Risk," Econometrica, Econometric Society, vol. 47(2), pages 263-91, March.
  4. Keeney,Ralph L. & Raiffa,Howard, 1993. "Decisions with Multiple Objectives," Cambridge Books, Cambridge University Press, number 9780521438834, April.
  5. Richard G. Frank, 2004. "Behavioral Economics and Health Economics," NBER Working Papers 10881, National Bureau of Economic Research, Inc.
  6. 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, vol. 20(1), pages 157-69, June.
  7. Colin F. Camerer & Howard Kunreuther, 1989. "Decision processes for low probability events: Policy implications," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 8(4), pages 565-592.
  8. 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.
  9. Shlomo Benartzi & Richard H. Thaler, 2002. "How Much Is Investor Autonomy Worth?," Journal of Finance, American Finance Association, vol. 57(4), pages 1593-1616, 08.
  10. Esther Dufluo & Emmanuel Saez, 2003. "The role of information and social interactions in retirement plan decisions: Evidence from a randomized experiment," Framed Field Experiments 00141, The Field Experiments Website.
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Cited by:
  1. 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.
  2. 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, vol. 61(C), pages 153-168.
  3. 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.
  4. Tibor Besedes & Cary Deck & Sudipta Sarangi & Mikhael Shor, 2012. "Designing a Sequential Choice Architecture to Reduce Choice Overload," Working papers 2012-24, University of Connecticut, Department of Economics.
  5. Heiss, Florian & Leive, Adam & McFadden, Daniel & Winter, Joachim, 2012. "Plan Selection in Medicare Part D: Evidence from administrative Data," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 384, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
  6. Besedeš, Tibor & Deck, Cary & Sarangi, Sudipta & Shor, Mikhael, 2012. "Decision-making strategies and performance among seniors," Journal of Economic Behavior & Organization, Elsevier, vol. 81(2), pages 524-533.
  7. Allen N. Berger & Thomas Kick & Klaus Schaeck, 2012. "Executive Board Composition and Bank Risk Taking," Working Papers 12004, Bangor Business School, Prifysgol Bangor University (Cymru / Wales).

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