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On financial decisions, older isn’t always wiser

By Carolyn Y. Johnson
Globe Staff / February 1, 2010

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Contrary to the popular notion that young people are reckless, while older people avoid risks, new research shows that in an investment task that involves balancing risk to make the most money, older people make more mistakes than their younger counterparts.

That does not mean older adults are bad investors who should not be entrusted with financial decisions. But the research - in which participants were placed in a brain scanner while they chose stocks and bonds - found that as age increases, so do the mistakes people make. The scans also showed that in older adults, there was more “noise’’ in a brain region thought to be involved in computing value.

“Older adults aren’t terrible at this, it’s just that they sometimes make more mistakes, especially when they were choosing the risky assets,’’ said Gregory R. Samanez-Larkin, a psychology graduate student at Stanford University and lead author of the study, published last week in the Journal of Neuroscience.

The researchers gave a group of 54 adults ages 19 to 85 an investment task that involved choosing between three options - a bond and two stocks - in 10 successive trials. The bond yielded $1 each time it was chosen. A good stock had a 50 percent chance of yielding $10, and a 25 percent chance of losing $10, while a bad stock had a 50 percent chance of losing $10 and a 25 percent chance of winning $10. The participants knew that one stock would be good and another bad, but were not told which was which.

That meant the most rational strategy would be to choose bonds until it was clear which was the good stock. What researchers found was that older adults were more likely to make mistakes, choosing to move to the stocks too early or switching from the good stock to the bad stock.

Using imaging that tracks blood flow, the researchers looked at what was happening in the brains of the participants. A region deep in the brain called the nucleus accumbens seemed to be more “noisy’’ in older adults. That brain system is thought to be involved with anticipating rewards and computing value, and the fluctuating activity, or noise, in that region seems to be related to the mistakes people made.

John Gabrieli, a neuroscientist at the Massachusetts Institute of Technology, noted that in another task, older adults tend to make more rational choices than younger people.

In experiments where people are offered a reward now or a bigger reward later, older adults act more rationally and with more patience than younger people.

Scott Huettel, associate professor of psychology and neuroscience at Duke University, said it is becoming clear that the stereotype that older adults are always risk-averse is simply not true.

In some cases, older adults make more risk-averse decisions, and in others they make more risk-seeking decisions. When making decisions about medications, for example, his research indicates that the experience older adults have is helpful in making decisions. But in other cases, older adults will take unnecessary risks.

Huettel said that, years ago, researchers began to notice that older adults had more variable or “noisy’’ brain activity. What is novel about the new study, he said, is that it looks at that variability as more than just a property of the aging brain, and focuses on the role it may play in changing behavior.

“This is something we definitely want to be exploring, even though we don’t know all the reasons behind this,’’ said Huettel, who was not involved in the research. “The very fact that there is this difference between older and younger adults is extremely intriguing.’’

For Samanez-Larkin and colleagues, real-world implications are part of the motivation to study these choices. Because researchers were also collecting data about the study participants’ finances, they found that those who performed best on the investment task in the scanner also accumulated more assets in the real world. Better understanding the brain and behavior might help researchers develop visual aids that could help older people make more rational decisions.

“One of the things we’re desperate to figure out is how we can improve the choices of older adults,’’ Samanez-Larkin said.

Carolyn Y. Johnson can be reached at cjohnson@globe.com.