Archives for rational

With Age Comes (Economic) Wisdom

A new study seems to confirm the adage that older means wiser, at least when it comes to making decisions about economic matters. From ScienceDaily:

To conduct their research, [Ye] Li and his colleagues recruited a group of 336 people — 173 younger (ages 18 to 29) and 163 older (ages 60 to 82) — and asked them a series of questions that measured economic decision making traits. They also administered a battery of standard fluid and crystallized intelligence tests.

These traits included temporal discounting (how much people discount future gains and losses), loss aversion (how much the valuation of losses outweigh gains of the same magnitude), financial literacy (understanding financial information and decisions) and debt literacy (understanding debt contracts and interest rates).

They found the older participants performed as well or better than the younger participants in all four decision-making measures. The older group exhibited greater patience in temporal discounting and better financial and debt literacy. The older participants were somewhat less loss averse, but the result did not reach standard levels of significance.

“The findings confirm our hypothesis that experience and acquired knowledge from a lifetime of decision making offset the declining ability to learn new information,” Li said.

(HT: R.E. Riker)

Skipping the Free Buffet

Rational? I’m at a hotel and was given a coupon allowing me to eat the excellent breakfast buffet at no cost. Sounds good; but instead, I go next door to Caribou Coffee and buy a coffee and blackberry scone for $5. Is this utility-maximizing? 

I think so. I know that if I get the “free” buffet, I’ll eat a lot—probably orange juice and a large Belgian waffle with lots of syrup. Having pigged out over Thanksgiving, my weight is already up. Spending the $5 is a self-control mechanism: I know that once I’m done at Caribou, I’ll be sufficiently less hungry that I won’t want to spend time at the buffet (and won’t have eaten more than I should). There’s more to utility than increasing income and/or reducing spending!