Thursday, January 28, 2010

Why older adults choose riskier investments

Older Americans forced to postpone retirement because of stock market losses often continue to make risky investments. These decisions may hurt not only the individuals who make them but the economy as a whole.

Yet little research has tried to understand how the aging brain processes these critical investment decisions. A new study by Camelia M. Kuhnen (Assistant Professor of Finance at the Kellogg School of Management) and colleagues Gregory R. Samanez-Larkin (doctoral student at Stanford University), Daniel J. Yoo (research assistant at Stanford University), and Brian Knutson (Associate Professor of Psychology at Stanford University) offers some clues. Their research, published in the The Journal of Neuroscience, finds that older adults tend to make mistakes when choosing riskier investments because of “noisy” value signals in their brains.

The study used brain-scanning equipment to compare the brains of younger adults to older adults as they played a fast-paced investment game. Examining the responses of older adults, Kuhnen and colleagues found a correlation between risky investments and reactions in the brain’s reward circuitry, specifically a region in the emotional brain called the nucleus accumbens.

“We found older adults made more mistakes,” Kuhnen says. “They seem unable to represent value accurately in the nucleus accumbens area.”

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