When the researchers compared participants’ performance with a mathematical model designed to maximize economic gains, they found that older people’s performance deviated more from the model. The activity in the older group’s nucleus accumbens was also more variable. “That noisiness could account for the random stock picking,” says Knutson. In fact, the individuals whose brain activity was the noisiest—those whose nucleus accumbens varied most with respect to anticipation of a reward—made the most serious investment mistakes.
Researchers point out that the noisy brain activity was specific to that part of the brain. “It’s not kind of profile you think you’d see if someone had dementia or couldn’t remember things,” says Knutson. (They also emphasize that the participants were not investment professionals; the study was designed to assess the behavior of people who are relatively naive about investments and lack the aid of an adviser. So there’s no need to switch to a younger financial planner, they say.)
The next step is to use these basic findings to try to improve decision-making. “To make this line of research relevant, we have to turn it into some kind of application,” says Hauke Heekeren, a neuroscientist at the Max Planck Institute for Human Development. “We would want to know whether we have to use a different format to deliver information about insurance or ways to allocate retirement savings to get the same quality of decision.”
In a follow-up experiment to be published in January 2011, Larkin and collaborators did present information in different formats. “The noisy brain activity suggests that the representation of the value of these options in the brain is noisy,” says Larkin. “That means the way people are updating this information is imprecise, and they are carrying this forward [into the next round of calculations].”
In the follow-up study, researchers showed participants either a line graph of the history of a stock’s performance or a gauge that integrated the stock’s past performance. Both visual aids obviate the need to keep mental track of the stock’s performance.
“Both of these things worked better than what we did before,” resulting in more successful investment decisions, says Larkin. With the added information, older people performed just as well as younger people who were given the original task. (However, younger people still outperformed their senior counterparts when given the same historical information.)
Larkin now hopes to figure out how to use the research more directly. He recently won a grant from the Financial Industry Regulatory Authority (FINRA), the largest independent regulator of securities firms doing business in the United States, to study victims of investment fraud who are older than 55. The FINRA has a number of ongoing fraud-prevention programs, and, Larkin says, “we hope this research will help tailor some of these prevention programs.”