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Age-Old
Money Matters: Positivity in older adults
leads to balanced investments
The economic and psychological term known as
“sunk-cost fallacy” is a bias that leads
someone to make a decision based solely on a
previous financial investment.
For
example, a baseball fan might attend every
game of the season only because he already
purchased the tickets.
But not
everyone would force themselves to brave the
pouring rain for a single game in one season
simply because they previously paid for the
seats.
So who is more likely to commit or avoid the
sunk-cost fallacy and why?
In a recent
study, psychologists JoNell Strough, Clare
Mehta, Joseph McFall and Kelly Schuller from
West Virginia University found that younger
adults were more likely to commit to a
situation if they had already invested money
into it, and that older adults showed a more
balanced fiscal perspective of the same
situation.
To get to
this conclusion, the researchers presented
college students and senior citizens with
two vignettes to test how likely each age
group would be to watch a boring, paid-for
movie versus a boring, free movie.
The first vignette specifically read, “You
paid $10.95 to see a movie on pay TV. After
five minutes, you are bored and the movie
seems pretty bad”; the other vignette did
not include a cost.
Participants then selected from five options
regarding their projected time
commitment--stop watching entirely, watch
for ten more minutes, watch for twenty more
minutes, watch for thirty more minutes or
watch until the end.
The results, which appear in the July issue
of Psychological Science, a publication of
the Association for Psychological Science,
show the older adults spent the same amount
of time watching the movie regardless of
monetary investment.
In
contrast, the young adults chose to invest
more time in the paid-for movie than the
free movie in order to avoid wasting $10.95.
The
psychologists attribute the distinction
between younger and older peoples’ decisions
to differences in the way each group thinks
about gains versus losses.
“Younger adults show a negativity bias,”
Strough explained.
“They weigh
negative information, such as the lost
investment, more heavily than positive
information and so they try to ‘recover’ the
lost investment by investing more time.”
On the other hand, older adults are more
likely to view the positive side of
situations; therefore, their decisions
reflect a more balanced view of gains and
losses.
According
to the psychologists, older adults’ more
balanced view may help them recognize that,
once made, this type of investment cannot be
recovered simply by committing more time to
the activity.
Author Contact: Jonell Strough
jonell.strough@mail.wvu.edu
Psychological Science is ranked among the
top 10 general psychology journals for
impact by the Institute for Scientific
Information. For a copy of the article “Are
Older Adults Less Subject to the Sunk-Cost
Fallacy Than Younger Adults?” and access to
other Psychological Science research
findings, please contact Katie Kline at
(202) 293-9300 or
kkline@psychologicalscience.org .
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