Complementary Cognitive Capabilities, Economic Decision-Making, and Aging

Psychology & Aging, 28(3), 595-613. DOI 10.1037/a0034172

65 Pages Posted: 27 Sep 2013 Last revised: 4 Nov 2013

See all articles by Ye Li

Ye Li

University of California, Riverside (UCR) - Department of Management and Marketing; Center for Decision Sciences, Columbia University

Martine Baldassi

Columbia University - Columbia Business School

Eric J. Johnson

Columbia Business School - Marketing

Elke U. Weber

Princeton University - Department of Psychology

Date Written: June 18, 2013

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.

Keywords: Cognitive Aging, Decision Making, Fluid Intelligence, Crystallized Intelligence

Suggested Citation

Li, Ye and Baldassi, Martine and Johnson, Eric J. and Weber, Elke U., Complementary Cognitive Capabilities, Economic Decision-Making, and Aging (June 18, 2013). Psychology & Aging, 28(3), 595-613. DOI 10.1037/a0034172, Available at SSRN: https://ssrn.com/abstract=2330545

Ye Li (Contact Author)

University of California, Riverside (UCR) - Department of Management and Marketing ( email )

United States

Center for Decision Sciences, Columbia University

New York, NY
United States

Martine Baldassi

Columbia University - Columbia Business School ( email )

3022 Broadway
New York, NY 10027
United States

Eric J. Johnson

Columbia Business School - Marketing ( email )

New York, NY 10027
United States

Elke U. Weber

Princeton University - Department of Psychology

Green Hall
Princeton, NJ 08540
United States

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