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The Aging Investor: Insights from Neuroeconomics

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  • Peter N. C. Mohr
  • Hauke R. Heekeren

Abstract

Individuals 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 Info

Paper provided by Sonderforschungsbereich 649, Humboldt University, Berlin, Germany in its series SFB 649 Discussion Papers with number SFB649DP2012-038.

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Length: 24 pages
Date of creation: May 2012
Date of revision:
Handle: RePEc:hum:wpaper:sfb649dp2012-038

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Related research

Keywords: neuroeconomics; neurofinance; aging; neuromodulation; risk-return models; risk; fMRI; decision making under risk;

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  1. Dohmen Thomas & Falk Armin & Huffman David & Sunde Uwe & Schupp Jürgen & Wagner Gert G., 2009. "Individual Risk Attitudes: Measurement, Determinants and Behavioral Consequences," Research Memorandum 039, Maastricht University, Maastricht Research School of Economics of Technology and Organization (METEOR).
  2. Colin F. Camerer, 2007. "Neuroeconomics: Using Neuroscience to Make Economic Predictions," Economic Journal, Royal Economic Society, vol. 117(519), pages C26-C42, 03.
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