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Age Effects and Heuristics in Decision Making

  • 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)

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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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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  1. Esther Duflo & Emmanuel Saez, 2002. "The Role of Information and Social Interactions in Retirement Plan Decisions: Evidence from a Randomized Experiment," NBER Working Papers 8885, National Bureau of Economic Research, Inc.
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  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. repec:cup:cbooks:9780521438834 is not listed on IDEAS
  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. 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. Emmanuel Saez & Esther Duflo, 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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