The Aging Investor: Insights from Neuroeconomics
AbstractIndividuals in most industrialized countries have to make investment decisions throughout their adult life span to save for their retirement. These decisions substantially affect their living standards in old age. Research on cognitive aging has already demonstrated several changes in cognitive functions (e.g., processing speed) that likely influence investment decisions. This review brings together research on behavioral and neural aspects of financial decision making and aging to advance knowledge on age-related changes in financial decision making. The dopaminergic system plays a key role in financial decision making, both in financial decisions from description and financial decisions from experience. Importantly, both dopaminergic neuromodulation and financial decision making change during healthy aging. Especially when the parameters of the return distribution have to be learned from experience, older adults show a different and suboptimal choice behavior compared to younger adults. Based on these observations we suggest ways to circumvent the age-related bias in financial decision making to improve older adults’ wealth.
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Bibliographic InfoPaper provided by Sonderforschungsbereich 649, Humboldt University, Berlin, Germany in its series SFB 649 Discussion Papers with number SFB649DP2012-038.
Length: 24 pages
Date of creation: May 2012
Date of revision:
neuroeconomics; neurofinance; aging; neuromodulation; risk-return models; risk; fMRI; decision making under risk;
Find related papers by JEL classification:
- D03 - Microeconomics - - General - - - Behavioral Microeconomics; Underlying Principles
- D87 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Neuroeconomics
- G02 - Financial Economics - - General - - - Behavioral Finance: Underlying Principles
- G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
This paper has been announced in the following NEP Reports:
- NEP-AGE-2012-05-29 (Economics of Ageing)
- NEP-ALL-2012-05-29 (All new papers)
- NEP-EXP-2012-05-29 (Experimental Economics)
- NEP-NEU-2012-05-29 (Neuroeconomics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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"Individual risk attitudes: Measurement, determinants, and behavioral consequences,"
Munich Reprints in Economics, University of Munich, Department of Economics
20048, University of Munich, Department of Economics.
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- Dohmen, Thomas J. & Falk, Armin & Huffman, David & Sunde, Uwe & Schupp, JÃ¼rgen & Wagner, Gert G., 2009. "Individual risk attitudes: Measurement, determinants and behavioral consequences," Munich Reprints in Economics, University of Munich, Department of Economics 20049, University of Munich, Department of Economics.
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