Where Seniors Excel: Cutting Your Losses

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Aging has a bad reputation. Many people see aging on television and in film as a slow weakening of just about everything: the mind, the body, social skills, even relationships during a slow march toward the Grim Reaper. But a study published in Psychology and Aging proves that, although many people lament graying hair or bad knees, seniors are actually doing very well at one important aspect of decision-making: cutting their losses.

This is framed largely in terms of financial investments, according to the study, but speaks to a larger part of decision-making. “Cutting your losses” means giving up on a commitment that is simply not working out, causing you to lose money, time, and energy. It seems that seniors are very good at this, especially when losses are large, compared to younger people. This is an important part of decision-making: instead of slugging it out pointlessly, trying in vain for a given decision to turn out well, seniors are willing to walk away, take the loss, and recover from it. Scientists cannot explain specifically why seniors are so good at this, but we can hazard a few guesses.

…many seniors have learned to recognize a downhill run when they see one.

After years of experience in the world, many seniors have learned to recognize a downhill run when they see one. Valuing their time and judgment perhaps more highly than less experienced peers, seniors are able to say no to reinvesting more in a failing project. In this way, older really is wiser.

…seniors can more effectively manage funds in many ways.

Why is this a big deal? The financial benefit of cutting losses and moving on is obvious: by refusing to sink more money into a failing business or buy stock that hasn’t netted any gain, and by moving on from that loss, seniors can more effectively manage funds in many ways. Investment in the stock market in particular is more about ruthless effectiveness than ego, pride, or emotional attachment to a given decision, and seniors therefore have an advantage over younger people, who may spend too much time or resources on investments that simply will not bring them the rewards they need.

In 2013 Time magazine published an article that discussed the recognized scientific fact that older people tend to make worse decisions than younger people overall. This statement is fairly controversial, obviously, but the research still holds. In fact, a study published earlier in that year showed that the fact is still supported by scientific research: older people are more likely to take risks when the potential losses are larger, making less solid decisions than younger people, who took greater risk with greater possible gain. In the practical world, this could absolutely cause major loss on the parts of seniors.

Pairing these two results—seniors are willing to lose more, but are also willing to cut losses and gain them back later—reveals an interesting way that seniors make decisions, especially financial ones. In contrast to younger folk, seniors are willing to lose but can shake that off; younger people are less comfortable risking loss and recovering from that loss.

Sources

Agneiszka, Tymula, Rosenberg Belmaker, Lior A., Ruderman, Lita, Glimcher, Paul W., and Levy, Ifat. (2013). Like cognitive function, decision making across the life span shows profound age-related changes. Proceedings of the National Academy of Sciences (PNAS) 110 (42): 17143-17148. Available at http://www.pnas.org/content/110/42/17143.full?sid=3c7226ca-a4fd-4486-b0f1-e1c113fc6f99. Retrieved on March 4, 2015.

Bruine de Bruin, Wändi, Strough, JoNell, Parker, Andrew M. (September 2014). Getting older isn’t all that bad: Better decisions and coping when facing “sunk costs.” Psychology and Aging 29(3): 642-647. Available at http://psycnet.apa.org/journals/pag/29/3/642. Retrieved on March 4, 2015.

 

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