Age Effects and Heuristics in Decision Making

Abstract

Using controlled experiments, we examine how individuals make choices when faced with multiple options. Choice tasks are designed to mimic the selection of health insurance, prescription drug, or retirement savings plans. In our experiment, available options can be objectively ranked allowing us to examine optimal decision making. First, the probability of a person selecting the optimal option declines as the number of options increases, with the decline being more pronounced for older subjects. Second, heuristics differ by age with older subjects relying more on suboptimal decision rules. In a heuristics validation experiment, older subjects make worse decisions than younger subjects.

The effect of cognitive load on economic decision making: A survey and new experiments

“…However, we find no evidence for such β-δ preferences: difference in behavior between those making decisions regarding today and a future period are the same as those making a decision between two similarly spaced future periods. 8 Our inability to find patient behavior for future tradeoffs is consistent with the cognitive load findings of Benjamin et al (2013). In the Risk and Impatience tasks, the null hypothesis that the parameter on the treatment effects in Table A.1 is the same across sub-tasks cannot be rejected based on a generalized Hausman specification test (for the Risk task, p=0.2957; for the Impatience task, p=0.9870).…”

“…Indeed, menus containing too many options are often associated with poor choices, even when stakes are large such as choosing retirement savings and health insurance plans (Iyengar et al, 2004;Schram and Sonnemans, 2011;Abaluck and Gruber, 2011). A set of recent papers (Besedeš et al, 2012;Besedeš et al, 2014) find experimental evidence that subjects are less likely to select objectively optimal options from larger choice sets than from smaller ones, and that the way that options are presented can alleviate this effect.…”

“…Table A.1 shows that the difference is significant, even after clustering the standard errors by subject 8. Table 3gives the appearance that there is evidence for hyperbolic discounting.…”

Plan selection in Medicare Part D: Evidence from administrative data

“…In a recent study of plan choice in Massachusetts Health Connector, Sinaiko et al (2013) stress that prescription plan choices need to be simplified, and that consumers would benefit from guidance by decision-support tools. One important aspect is the number of options: In controlled laboratory experiments with subjects covering a wide age range, Besedeš et al (2012a, 2012b) show that the probability of selecting the optimal plan declines as the number of options increases. 27 Perhaps not surprisingly but nevertheless important in the context of health plan choice, the decline of choice quality with the size of the choice set is more pronounced for older subjects.…”

Buyer confusion and market prices

“…Decision makers often resort to relatively simple choice heuristics in those cases (Besedes et al, 2009;Payne, Bettman, Johnson, 1993). These studies, however, do not examine how buyers' cognitive limitations affect the marketing strategies and prices of sellers, which is the focus of the present paper.…”