Overconfidence and Financial Risk Tolerance in Older Age

Colleen C Frank, Gary R Mottola, Meiru Chen, Lei Yu, Patricia A Boyle, Gregory R Samanez-Larkin and Kendra L Seaman

The Journals of Gerontology: Series B, 2025, vol. 80, issue 6, 101-117

Abstract: ObjectivesExcessive financial risk-taking in older age can have harmful consequences as opportunities to recover lost wealth are limited. Understanding financial risk-taking in older age is important for identifying vulnerabilities and developing interventions to empower aging investors to make wise financial choices. In this paper, we explore how overconfidence in financial knowledge affects financial risk-taking among older adults.MethodsWe examine this research question in older adults aged 58–101 (N = 1,242) using data from the Rush Memory and Aging Project (MAP).ResultsAfter controlling for demographics, overconfidence was associated with self-reported financial risk tolerance such that those who were more overconfident reported tolerating more financial risks. Moreover, this relationship emerged for both healthy older adults and those diagnosed with mild cognitive impairment. However, overconfidence did not predict performance on a behavioral measure of risk aversion.DiscussionThe present results suggest that overconfidence may partially contribute to financial risk-taking in older adults, regardless of cognitive status. Thus, interventions aimed at calibrating confidence to actual levels of financial knowledge could be an impactful target for intervention.

Keywords: Confidence; Decision making; Financial knowledge; Risk (search for similar items in EconPapers)
Date: 2025
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The Journals of Gerontology: Series B is currently edited by Psychological Sciences - S. Duke Han, PhD and Social Sciences - Jessica A Kelley, PhD, FGSA

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