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Age Effects and Heuristics in Decision Making

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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File URL: http://bus.lsu.edu/McMillin/Working_Papers/pap09_03.pdf
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Paper provided by Department of Economics, Louisiana State University in its series Departmental Working Papers with number 2009-03.

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Handle: RePEc:lsu:lsuwpp:2009-03
Contact details of provider: Postal: Baton Rouge, LA 70803-6306
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  1. Richard G. Frank, 2004. "Behavioral Economics and Health Economics," NBER Working Papers 10881, National Bureau of Economic Research, Inc.
  2. Amos Tversky & Daniel Kahneman, 1979. "Prospect Theory: An Analysis of Decision under Risk," Levine's Working Paper Archive 7656, David K. Levine.
  3. 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.
  4. Kovalchik, Stephanie & Camerer, Colin F. & Grether, David M. & Plott, Charles R. & Allman, John M., 2003. "Aging and decision making: A comparison between neurologically healthy elderly and young individuals," Working Papers 1180, California Institute of Technology, Division of the Humanities and Social Sciences.
  5. 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.
  6. 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.
  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, 08.
  8. Florian Heiss & Daniel McFadden & Joachim Winter, 2007. "Mind the Gap! Consumer Perceptions and Choices of Medicare Part D Prescription Drug Plans," NBER Working Papers 13627, National Bureau of Economic Research, Inc.
  9. 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.
  10. repec:cup:cbooks:9780521438834 is not listed on IDEAS
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