A new study by Singaporean researchers shows that when people are asked to make financial decisions for strangers, older adults tend to make the same financial choices they would make for themselves, while young adults tend to take more risks with others’ money.

The findings are published in the journal Psychology and Aging.

“Our results demonstrate that decision-makers of different age groups have different motivational goals,” said team leader Assistant Professor Yu Rongjun, from the Department of Psychology at the National University of Singapore (NUS) Faculty of Arts and Social Sciences.

“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.”

People often need to make financial choices for themselves, and sometimes, on behalf of others. While research has shown that younger adults tend to take more risks when making financial decisions for others, there is a lack of scientific data on the decision-making behavior of the elderly.

To address this knowledge gap, Yu and his team conducted experiments to compare how younger adults and older adults make financial decisions — both for themselves and for others.

The research was conducted from 2016 and 2017, and involved 191 Singaporean participants. Among them, 93 were older adults with an average age of 70, while 98 were young adults with an average age of 23.

The participants completed a series of computerized decision-making tests in which they were assessed based on the choices they made under uncertainties. The researchers used computational modeling to analyze two aspects of the participants’ financial decision-making: loss aversion (tendency to weigh potential losses more strongly than potential gains) and risk-aversion asymmetry (tendency to be risk-averse for potential gains and risk-seeking for potential losses).

The findings reveal 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. Older adults, however, make similar choices for themselves and for others. Hence, the findings suggest that older adults care more about strangers’ welfare.

“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.”

“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,” said Yu.

To deepen their understanding on the financial decision-making process of people from different age groups, the research team will be conducting neuroimaging studies to look at the underlying neural basis of their observations.

“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,” said Yu.

“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.”

Source: National University of Singapore