Compensating Cognitive Capabilities, Economic Decisions, and Aging

Li, Ye, Martine Baldassi, Eric J. Johnson, and Elke U. Weber (2013). “Compensating Cognitive Capabilities, Economic Decisions, and Aging.” Psychology & Aging, 28(3), 595-613. DOI 10.1037/a0034172

Abstract: Fluid intelligence decreases with age, yet evidence about age declines in decision-making quality is mixed: Depending on the study, older adults make worse, equally good, or even better decisions than younger adults. We propose a potential explanation for this puzzle, namely that age differences in decision performance result from the interplay between two sets of cognitive capabilities that impact decision making, one in which older adults fare worse (i.e., fluid intelligence) and one in which they fare better (i.e., crystallized intelligence). Specifically, we hypothesized that older adults’ higher levels of crystallized intelligence can provide an alternate pathway to good decisions when the fluid intelligence pathway declines. The performance of older adults relative to younger adults therefore depends on the relative importance of each type of intelligence for the decision at hand. We tested this complementary capabilities hypothesis in a broad sample of younger and older adults, collecting a battery of standard cognitive measures and measures of economically important decision-making “traits”—including temporal discounting, loss aversion, financial literacy, and debt literacy. We found that older participants performed as well as or better than younger participants on these four decision-making measures. Structural equation modeling verified our hypothesis: Older participants’ greater crystallized intelligence offset their lower levels of fluid intelligence for temporal discounting, financial literacy, and debt literacy, but not for loss aversion. These results have important implications for public policy and for the design of effective decision environments for older adults.

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Press: "Wisdom Really Does Come with Age: Older people's knowledge and experience means they make better decisions", by Emma Innes, Mail Online

(Something interesting I found)Posted:Oct 01 2013, 12:00 AM by brendah
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