Complex Decision Making: The Roles of Cognitive Limitations, Cognitive Decline and Ageing

Michael Keane () and Susan Thorp

No 2016-W10, Economics Papers from Economics Group, Nuffield College, University of Oxford

Abstract: We review evidence on decision making in complex choice situations – i.e., situations where there are many alternatives and/or where attributes of alternatives are difficult to understand. We focus on choices about health insurance, health care, and retirement planning, all of which are very important for the well-being of the elderly. Our review suggests that consumers in general, and the elderly in particular, have great difficulty making optimal choices in these areas. They often behave in ways that imply a high degree of “confusion,” such as (i) failure to understand key attributes of alternatives, or (ii) inadequate cognitive capacity to process payoff relevant information. We go on to discuss extensions to standard rational choice models that account for consumer confusion. These include allowing perceived attributes to depart from true attributes; the use of heuristics; and inattention or procrastination. Such departures from rationality can be moderated by cognitive ability, age etc. We hope that these new models may be useful in designing paternalistic interventions.

Keywords: Aging; Life cycle; Health insurance; Health care; Pensions; Retirement plans; Discrete choice models (search for similar items in EconPapers)
JEL-codes: C35 D14 D83 D84 D91 H55 I11 I13 J14 J32 (search for similar items in EconPapers)
Pages: 71 pages
Date: 2016-11-01
New Economics Papers: this item is included in nep-age, nep-cbe, nep-ias and nep-neu
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (14)

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Persistent link: https://EconPapers.repec.org/RePEc:nuf:econwp:1610

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