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Age Effects and Heuristics in Decision Making

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Abstract

We examine in controlled experiments how individuals make choices when faced with multiple options. The choice tasks mimic the selection of health insurance, prescription drug, or retirement savings plans. However, in our experiment, the available options can be objectively ranked. We find that the probability of a person selecting the optimal option declines as the number of options increases, with the decline more pronounced for older subjects. Heuristics seem to differ by age with older subjects relying more on suboptimal decision rules. Behavior consistent with the estimated decision rules is observed in an out-of-sample experiment.

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  • Sudipta Sarangi & Tibor Besedes & Cary Deck & Mikhael Shor, 2009. "Age Effects and Heuristics in Decision Making," Departmental Working Papers 2009-03, Department of Economics, Louisiana State University.
  • Handle: RePEc:lsu:lsuwpp:2009-03
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    References listed on IDEAS

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    More about this item

    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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