1. Risk Management for the Future: Age, Risk, and Choice Architecture
Orly Lobel (USD)
On Amir (UC San Diego)

2. Age & Financial Risk Policy
Policy Challenge: ERISA, PPA, labor market shifts, and the rapid shift to defined contribution plans all signal reliance on individual choice. How can policy help improve these decisions through choice architecture?
Federal Reserve Data – suboptimal saving decisions (Browning 2011).
How is financial risk perceived across different ages?
Debate in the literature about effect of age (career cycle, retirement proximity, patience, learning).
How does the decision-making environment interact with age variation?

3. Dual-system model System 1 System 2
Fast, intuitive, affective, automatic, reflexive
First response
System 2
Slow, cognitive, effortful, reflective
Override – executive control
(Amir &Lobel 2008; Frederick & Kahneman, 2002; Pocheptsova et al., 2008; Lee et al. 2009; Amir & Lobel 2012a; 2012b)

4. Executive Resource Depletion
Prior unrelated tasks exerting executive control may hinder subsequent activities (Muraven and Baumeister, 2000; Amir, Vohs & Baumeister 2009)
Consequently, System 2 override is hindered (Pochptsova et al. 2008)
Resulting in greater relative reliance on System 1 processes (Amir and Lobel 2008; 2012a)
Risk Aversion/Risk Tolerance: demographic qualities but also vary within each individual in different decision-making states.
Interplay b/w age, risk, cognitive resources.

5. Depletion & Choice: Prediction
Resource depletion hinders performance of System 2 processes and increases reliance on lower-level ways of deciding.
Resource Depletion
Our main hypothesis is that resource depletion increases the reliance on lower-level more simplistic ways of deciding, as these make fewer demands on executive resources. therefore interrupting the performance of system2 processes.
Thus, when executive control (System 2) is hindered by prior depletion, we would expect to see lower-level (System 1) processes guiding choices
Absent sufficient resources for executive functions:
System 1 biases should increase(no correction from System2)
System 2 biases should decrease
System1
System 2
-elaborate evaluation
-trade-off comparisons
-System 1 monitoring

6. Depletion manipulation: Stroop task
Green
White
Blue
Red
Black
Green

7. Retirement savings (n=838) Opt-in to SMT
Older participants more likely to opt in to the savings plan, p = .045
Older participants however more affected by depletion - significant decrease in participation rates

8. Annuity vs. Lump sum
Younger people more likely to opt for annuity, rather than lump sum.
Depleted participants across ages are more likely to choose lump sum over an annuity, p = .08 “bounded self-control”

9. Stocks vs. Bonds (n=300) older more risk averse in control condition; when depleted –reverses natural state – override tendencies
n the control, the older people are the more risk avrese
(your standrad everyday result);
I think this is a very simple chocie scenario of risk in financial investment, and potentially involves fewer considerations
[1:47:01 PM] Orly Lobel: right - so its more like a pure gamble than decisions about future pensions
[1:35:51 PM] On Amir: Hoewever, when depleted, it reverses
[1:36:25 PM] On Amir: that is, the younger people become more risk averse and the older less risk averse
[1:38:22 PM] On Amir: the conclusion can be that the normal pattern (red line) is caused by a controlled override, which is either learned from experience or is naturally improving as you get older
[1:39:21 PM] On Amir: but that absent that override, the older people are actually less risk averse (which is consistent with older people having a harder time avoiding gambling and things like that)
the scatter plot only shows that there is variance, but the regression line is what matters
If anyone asks about the particular slopes - they are in the paper

10. Insurance
Younger participants even more inclined to choose the cheaper plan (i.e., the more risky alternative) than their older counterparts when depleted of cognitive resources (t[162] = 2.33, p =.02).

11. Conclusion
Overall, when cognitive resources are available, older participants opt for more prudent savings choices.
Much less so when depleted (akin to situations that do not allow the luxury of executive control override, such as when tired, sick, distracted, or even after making a series of arduous other choices).
In some instances, we also find the depletion of cognitive resources has an increased influence over older participants compared to younger participant.
Tailored Policy – particularly in retirement and savings behaviour where preferences not strong; defaults sticky; early path dependence.