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# The money or the box

15 July 2016
Financial decisions are sometimes influenced in ways we can’t see

Neuroeconomics is a discipline that combines neuroscience, economics and psychology. Dr Agnieszka Tymula is an expert in the field as she studies how our decisions are influenced by a range of factors including age.

Neuroeconomics research, which combines ideas from neuroscience, economics, and psychology, has enquired into such weighty matters as whether monkeys are more risk averse when they’re thirsty (yes) and if adolescents really are risk takers (no – but more on this later).

Dr Agnieszka Tymula is well versed in neuroeconomics. She’s a Senior Lecturer at the University’s School of Economics and describes herself as a decision scientist. She is interested in how people make financial decisions, particularly risky ones, and the role our brain plays in this process.

Dr Tymula recently started work with colleagues at the University’s Brain and Mind Centre, trying to figure out how economics fits in with their research on age-related cognitive decline.

“I hope our research leads to practical policy and lifestyle interventions,” Dr Tymula says. “So far a lot of effort has been made to improve memory for older people, which is of paramount importance. In this work we go one step further to look at improving decision making.”

In general, Dr Tymula’s research centres on the trade-offs people make when deciding between safe but smaller rewards and larger rewards that come with more risk, and understanding who will tolerate more risk and in what circumstances.

Most people who participate in psychology research like this receive a standard fee, but it’s different for Dr Tymula’s volunteers. Just like in the real world, their decisions can affect what they’re paid, which is important for seeing real-world outcomes.

“Asking hypothetical questions doesn’t convince economists,” Dr Tymula explains. “For example, I may ask a study participant if she prefers $5 for sure, or a lottery that pays either$12 or nothing, with a 50-50 chance.” As well as observing the decisions people make, Dr Tymula tracks brain activity using an MRI scanner.

“What was significant about older people in our study is that they made on average 40 per cent less money than young and mid-life adults,” Dr Tymula says. “Part of the reason is that older people are simply more risk and ambiguity averse, so they will pay a premium for this.”

At the opposite end of the age scale, Dr Tymula says it is a misconception that teenagers are prone to risk-taking behaviour.

“We have compared the risk attitudes of 12-to-90 year olds and we found something interesting when we separated between known and unknown risk. We discovered that when the risks are known, adolescents are just as risk averse as older adults and actually much more risk averse than middle-aged adults,” she says.

“It’s in situations where they don’t know the odds that adolescents take more risks. They behave as though the odds are skewed towards positive outcomes.”

A better understanding of adolescent risk taking could help limit risky behaviour. Dr Tymula believes this is particularly important when considering mortality rate for adolescents, which is twice as high as that for younger children, despite adolescents typically being stronger and healthier.

Dr Tymula explains that we can start to improve our daily chances of making the right decisions by reducing the number of choices.

“The more options you have to consider when making a decision, the more you have to spread your neural resources around. As a consequence, the signals in your brain become noisy and you are more likely to make mistakes. For example, as you increase the number of options, people are more likely to pick their second preference over their first,” she says.

“You should start by eliminating the worst choices - what we call the distractors - first. This allows you to make the best decision.”

Although age is a factor in decision making, it is not a simple correlation. “When people age, their brains change, losing grey matter at an individual, specific pace,” Dr Tymula says. “We know now that grey-matter volume is more significant than chronological age as a predictor of an individual’s risk attitude.”

Dr Tymula also found that older people tended to make less money in her study because they were more likely to make mistakes and choose options that made them financially worse off.

“The brain is plastic - it can be shaped - so once we learn which regions of the brain are responsible for inferior financial decision making, we can start to think about what interventions can be made to slow this down. These could be simple recommendations to do more of certain activities that will help. If I can achieve this by the time I’m old, that would be awesome!”

Written by Kat Friel
Photography by Stefanie Zingsheim

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