Age Makes You Happier - And Poorer

The suggestion is that this change in behavior is driven by a change in expectation of future time horizons. Or to be more blunt, you're less and less bothered about long-term planning and more and more concerned about short-term satisfaction the closer you get to dying.

Now the corollary to this, you might expect, is that older people will make worse decisions. After all, if you're unwilling to expose yourself to contradictory information then you're shutting down potentially valuable sources of data. However, research increasingly suggests that the decline in cognitive skills associated with aging is compensated for by a combination of better problem solving skills and greater emotional self-control.

Aged Problem Solvers

In essence, older people have a wider range of strategies to deal with the situations they're confronted with and are better at managing their own feelings in order to achieve the outcomes they desire. As expressed by Fredda Blanchard-Fields in Everyday Problem Solving and Emotion:

"Older adults are more likely than young adults to combine (a) actions directly targeted to the source of their problems with (b) emotion-regulation strategies that buffer psychological stress. This suggests that when solving everyday problems older adults display more complex, flexible, and emotionally mature functioning than otherwise expected"

So perhaps this greater emotional detachment and wider range of strategies might help older investors compensate for cognitive decline? Well, up to a point.

The point being about 70 years old.

The Cognitive Investment Cliff

In Do Older Investors Make Better Investment Decisions? the authors George Korniotis and Alok Kumar find that older investors do have better decision making heuristics than younger ones. They also find that older investors have better diversified portfolios, trade less frequently and are generally less impacted by behavioral bias. All these we would regard as unequivocally good qualities in an investor.

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Age related positivity effect added to the Big List of Behavioral Biases

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