When making financial decisions, older adults think of other people’s financial outcomes as they think of their own and make choices they would have made for themselves, according to a new study.
In the study, researchers compared how adults in older and younger age groups make financial decisions both for themselves and for others.
“Citizens in approximately one third of the countries around the world rely heavily on decisions made by older adults who may be government, business, or community leaders. It is important to not only understand how these elderly people make decisions for themselves, but also how they make decisions on behalf of others, as their decisions can lead to significant gains or losses,” says team leader Yu Rongjun, assistant professor from the psychology department at the National University of Singapore’s Faculty of Arts and Social Sciences.
People often need to make financial choices for themselves, and sometimes, on behalf of others. Studies have shown that younger adults take more risks when making financial decisions for others. However, there is a lack of understanding about the decision-making behavior of the elderly.
To address this knowledge gap, Yu and his team conducted studies to compare how younger adults and older adults make financial decisions, both for themselves and for others.
The researchers conducted the study from 2016 to 2017. Of the 191 Singaporean participants, 93 were older adults with an average age of 70, while 98 were young adults averaging 23 years old.
The researchers asked participants to complete a series of computerized decision-making tests in which researchers assessed them based on the choices they made under uncertainties. The research team used computational modeling to analyze two aspects of the participants’ financial decision-making: loss aversion, which is a tendency to weight potential losses more strongly than potential gains, and risk-aversion asymmetry, which looks at the tendency to be risk-averse for potential gains and risk-seeking for potential losses.
Thinking of others
The results show that when younger adults are making financial decisions on behalf of others, they take more risks even when the decisions put the person they are acting for at a disadvantage. For the seniors, they make similar choices for themselves and when they act for others. Hence, the findings suggest that older adults care more about strangers’ welfare.
“Our results demonstrate that decision-makers of different age groups have different motivational goals. The young adults may treat the finances of others’ differently from their own, perhaps regarding them as being less important. On the other hand, the older generation may care more about social harmony and emotional experience, and have less emphasis on material gains,” says Yu.
“Although we did not manipulate decision-making power and participants simply made choices for strangers in our study, we speculate that similar age-dependent decision-making patterns may also apply to real-life workplace,” Yu says.
“For instance, a young boss may choose one insurance plan for his employees and another plan for himself. The plan that he picks for others may be more risky and potentially disadvantageous compared to the plan he chooses for himself. On the other hand, an older boss is likely to select the same plan for his staff and himself. The findings of this study resonate with our earlier research which showed older adults are more generous towards strangers.”
To deepen their understanding on the financial decision-making process of people from different age groups, Yu and his team will be conducting neuroimaging studies to examine the underlying neural basis of their observations.
The results of the study appear in the journal Psychology and Aging.
Source: National University of Singapore