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Using neuroeconomics to understand how aging affects financial decisions


Researchers are combining imaging and traditional economic theory to gain insight into recent literature suggesting that, contrary to popular perception, older people make riskier and less logical investment decisions than younger people. Brian Knutson, PhD, assistant professor of psychology and of neuroscience at Stanford, is one of the researchers studying what changes in the brain may be responsible for this trend.

Technology Review reports:

In an experiment published earlier this year, Knutson and [Vanderbilt post-doc Gregory Samanez Larkin] asked people of varying ages to pick stocks while lying in a magnetic resonance brain scanner. Participants got feedback on the stocks' performance throughout the task. The researchers knew from previous research that a certain part of the brain called the nucleus accumbens is more active when people anticipate making money or taking a financial risk. Another part is more active when they anticipate losing money or avoiding a risk.

When the researchers compared participants' performance with a mathematical model designed to maximize economic gains, they found that older people's performance deviated more from the model. The activity in the older group's nucleus accumbens was also more variable. "That noisiness could account for the random stock picking," says Knutson. In fact, the individuals whose brain activity was the noisiest-those whose nucleus accumbens varied most with respect to anticipation of a reward-made the most serious investment mistakes.

The story goes on to report that such research could be useful to financial regulatory agencies or in developing financial fraud prevention programs for persons older than 55.

Photo by Stephen Hampshire

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