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Age Effects and Heuristics in Decision Making

Author

Listed:
  • 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.

Suggested Citation

  • Tibor Besedeš & Cary Deck & Sudipta Sarangi & Mikhael Shor, 2012. "Age Effects and Heuristics in Decision Making," The Review of Economics and Statistics, MIT Press, vol. 94(2), pages 580-595, May.
    • Handle: RePEc:tpr:restat:v:94:y:2012:i:2:p:580-595
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    References listed on IDEAS

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    1. Keeney,Ralph L. & Raiffa,Howard, 1993. "Decisions with Multiple Objectives," Cambridge Books, Cambridge University Press, number 9780521438834, December.
    2. Gur Huberman & Wei Jiang, 2006. "Offering versus Choice in 401(k) Plans: Equity Exposure and Number of Funds," Journal of Finance, American Finance Association, vol. 61(2), pages 763-801, April.
    3. Kahneman, Daniel & Tversky, Amos, 1979. "Prospect Theory: An Analysis of Decision under Risk," Econometrica, Econometric Society, vol. 47(2), pages 263-291, March.
    4. Florian Heiss & Daniel McFadden & Joachim Winter, 2010. "Mind the Gap! Consumer Perceptions and Choices of Medicare Part D Prescription Drug Plans," NBER Chapters,in: Research Findings in the Economics of Aging, pages 413-481 National Bureau of Economic Research, Inc.
    5. Cole, Catherine A & Balasubramanian, Siva K, 1993. " Age Differences in Consumers' Search for Information: Public Policy Implications," Journal of Consumer Research, Oxford University Press, vol. 20(1), pages 157-169, June.
    6. 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, Oxford University Press, vol. 118(3), pages 815-842.
    7. Shlomo Benartzi & Richard H. Thaler, 2002. "How Much Is Investor Autonomy Worth?," Journal of Finance, American Finance Association, vol. 57(4), pages 1593-1616, August.
    8. 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.
    9. Richard G. Frank, 2004. "Behavioral Economics and Health Economics," NBER Working Papers 10881, National Bureau of Economic Research, Inc.
    10. Kovalchik, Stephanie & Camerer, Colin F. & Grether, David M. & Plott, Charles R. & Allman, John M., 2005. "Aging and decision making: a comparison between neurologically healthy elderly and young individuals," Journal of Economic Behavior & Organization, Elsevier, vol. 58(1), pages 79-94, September.
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    More about this item

    Keywords

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

    JEL classification:

    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles
    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health

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