Behavioral Economics and Aging

David Laibson
Harvard University and NBER
July 8, 2009
RAND
 1. Motivating Experiments
A Thought Experiment
Would you like to have
A) 15 minute massage now
or
B) 20 minute massage in an hour

Would you like to have

C) 15 minute massage in a week
or
D) 20 minute massage in a week and an hour
 Read and van Leeuwen (1998)

Choosing Today Eating Next Week

Time

If you were
deciding today,
would you choose
fruit or chocolate
for next week?
 Patient choices for the future:

Choosing Today Eating Next Week

Time

Today, subjects 74%

typically choose choose
fruit for next week. fruit
 Impatient choices for today:

Choosing and Eating

Simultaneously
Time

If you were
deciding today,
would you choose
fruit or chocolate
for today?
 Time Inconsistent Preferences:

Choosing and Eating

Simultaneously
Time

70%
choose
chocolate
Read, Loewenstein & Kalyanaraman (1999)

Choose among 24 movie videos

• Some are “low brow”: Four Weddings and a Funeral
• Some are “high brow”: Schindler’s List

• Picking for tonight: 66% of subjects choose low brow.

• Picking for next Wednesday: 37% choose low brow.
• Picking for second Wednesday: 29% choose low brow.

Tonight I want to have fun…

next week I want things that are good for me.
 Extremely thirsty subjects
McClure, Ericson, Laibson, Loewenstein and Cohen (2007)

• Choosing between, juice now or

2x juice in 5 minutes 60% of subjects choose first option.
• Choosing between juice in 20 minutes or 2x juice
in 25 minutes 30% of subjects choose first option.

• We estimate that the 5-minute discount rate is 50% and the

“long-run” discount rate is 0%.
• Ramsey (1930s), Strotz (1950s), & Herrnstein (1960s) were
the first to understand that discount rates are higher in the
short run than in the long run.
 Outline
1. Motivating experimental evidence
2. Theoretical framework
3. Field evidence
4. Neuroscience foundations
5. Neuroimaging evidence
6. Policy discussion
7. The age of reason

A copy of these slides will soon be available on

my Harvard website.
 2. Theoretical Framework
• Classical functional form: exponential functions.
D(t) = t
D(t) = 1, 
Ut = ut + ut+1 ut+2ut+3 
• But exponential function does not show instant
gratification effect.
• Discount function declines at a constant rate.
• Discount function does not decline more quickly in
the short-run than in the long-run.
 Exponential Discount Function

1
Discounted value of

Constant rate of decline

delayed reward

0
1 11 21 31 41 51
Week (time = t)

-D'(t)/D(t) = rate of decline of a discount function

Exponential Hyperbolic
 Discount Functions
Slow rate of decline
in long run
1
Rapid rate
of decline
in short run

0
1 11 21 31 41 51
Week

Exponential Hyperbolic
 An exponential discounting paradox.

Suppose people discount at least 1% between today and

tomorrow.

Suppose their discount functions were exponential.

Then 100 utils in t years are worth 100*e(-0.01)*365*t utils today.

• What is 100 today worth today? 100.00

• What is 100 in a year worth today? 2.55
• What is 100 in two years worth today? 0.07
• What is 100 in three years worth today? 0.00
 An Alternative Functional Form

Quasi-hyperbolic discounting
(Phelps and Pollak 1968, Laibson 1997)

D(t) = 1, 
Ut = ut + ut+1 ut+2ut+3 
Ut = ut + ut+1 ut+2ut+3 

 uniformly discounts all future periods.

 exponentially discounts all future periods.
For continuous time: see Barro (2001), Luttmer and Marriotti (2003), and
Harris and Laibson (2009)
 Building intuition
• To build intuition, assume that  = ½ and = 1.
• Discounted utility function becomes
Ut = ut + ½ut+1 ut+2ut+3 

• Discounted utility from the perspective of time t+1.

Ut+1 = ut+1 + ½ut+2 ut+3

• Discount function reflects dynamic inconsistency:

preferences held at date t do not agree with preferences
held at date t+1.
 Application to massages
 = ½ and = 1

NPV in
current minutes

A 15 minutes now 15 minutes now

B 20 minutes in 1 hour 10 minutes now

C 15 minutes in 1 week 7.5 minutes now

D 20 minutes in 1 week plus 1 hour 10 minutes now
 Application to massages
 = ½ and = 1

NPV in
current minutes

A 15 minutes now 15 minutes now

B 20 minutes in 1 hour 10 minutes now

C 15 minutes in 1 week 7.5 minutes now

D 20 minutes in 1 week plus 1 hour 10 minutes now
 Exercise

• Assume that  = ½ and = 1.

• Suppose exercise (current effort 6) generates delayed
benefits (health improvement 8).
• Will you exercise?

• Exercise Today: -6 + ½ [8] = -2

• Exercise Tomorrow: 0 + ½ [-6 + 8] = +1

• Agent would like to relax today and exercise tomorrow.

• Agent won’t follow through without commitment.
 3. Field Evidence
Della Vigna and Malmendier (2004, 2006)

• Average cost of gym membership: $75 per month

• Average number of visits: 4
• Average cost per vist: $19
• Cost of “pay per visit”: $10
 Choi, Laibson, Madrian, Metrick (2002)
Self-reports about undersaving.
Survey
Mailed to 590 employees (random sample)
Matched to administrative data on actual savings behavior
 Typical breakdown among 100 employees

Out of
every 100 68 self-report
saving too little 24 plan to
surveyed raise
employees savings rate
in next 2
months

3 actually follow through

22
 Laibson, Repetto, and Tobacman (2007)

Use MSM to estimate discounting parameters:

– Substantial illiquid retirement wealth: W/Y = 3.9.
– Extensive credit card borrowing:
• 68% didn’t pay their credit card in full last month
• Average credit card interest rate is 14%
• Credit card debt averages 13% of annual income
– Consumption-income comovement:
• Marginal Propensity to Consume = 0.23
(i.e. consumption tracks income)
 LRT Simulation Model
• Stochastic Income
• Lifecycle variation in labor supply (e.g. retirement)
• Social Security system
• Life-cycle variation in household dependents
• Bequests
• Illiquid asset
• Liquid asset
• Credit card debt

• Numerical solution (backwards induction) of 90 period

lifecycle problem.
 LRT Results:
Ut = ut + ut+1 ut+2ut+3 

  = 0.70 (s.e. 0.11)

  = 0.96 (s.e. 0.01)
 Null hypothesis of  = 1 rejected (t-stat of 3).
 Specification test accepted.

Moments:
Empirical Simulated (Hyperbolic)
%Visa: 68% 63%
Visa/Y: 13% 17%
MPC: 23% 31%
f(W/Y): 2.6 2.7
 Kaur, Kremer, and Mullainathan (2009):
Compare two piece-rate contracts:
1. Linear piece-rate contract (“Control contract”)
– Earn w per unit produced
2. Linear piece-rate contract with penalty if worker does not
achieve production target T (“Commitment contract”)
– Earn w for each unit produced if production>=T, earn w/2 for each
unit produced if production<T

Earnings

Never earn more under

commitment contract

May earn much less

Production
T
 Kaur, Kremer, and Mullainathan (2009):
• Demand for Commitment (non-paydays)
– Commitment contract (Target>0) chosen 39% of the time
– Workers are 11 percentage points more likely to choose
commitment contract the evening before

• Effect on Production (non-paydays)

– Being offered contract choice increases average
production by 5 percentage points relative to control
– Implies 13 percentage point productivity increase for those
that actually take up commitment contract
– No effects on quality of output (accuracy)

• Payday Effects (behavior on paydays)

– Workers 21 percentage points more likely to choose
commitment (Target>0) morning of payday
– Production is 5 percentage points higher on paydays
 Some other field evidence

• Ashraf and Karlan (2004): commitment savings

• Della Vigna and Paserman (2005): job search
• Duflo (2009): immunization
• Duflo, Kremer, Robinson (2009): commitment fertilizer
• Karlan and Zinman (2009): commitment to stop smoking
• Milkman et al (2008): video rentals return sequencing
• Oster and Scott-Morton (2005): magazine marketing/sales
• Sapienza and Zingales (2008,2009): procrastination
• Thornton (2005): HIV testing
• Trope & Fischbach (2000): commitment to medical adherence
• Wertenbroch (1998): individual packaging
 4. Neuroscience Foundations
• What is the underlying mechanism?
• Why are our preferences inconsistent?
• Is it adaptive?
• How should it be modeled?
• Does it arise from a single time preference
mechanism (e.g., Herrnstein’s reward per unit time)?
• Or is it the resulting of multiple systems interacting
(Shefrin and Thaler 1981, Bernheim and Rangel
2004, O’Donoghue and Loewenstein 2004,
Fudenberg and Levine 2004)?
 Shiv and Fedorikhin (1999)

• Cognitive burden/load is manipulated by having

subjects keep a 2-digit or 7-digit number in mind as
they walk from one room to another
• On the way, subjects are given a choice between a
piece of cake or a fruit-salad

Processing burden % choosing cake

Low (remember only 2 digits) 41%

High (remember 7 digits) 63%
 Affective vs. Analytic Cognition

Frontal Parietal
cortex cortex

mPFC
mOFC
vmPFC

Mesolimbic dopamine
reward system
 Relationship to quasi-hyperbolic model

• Hypothesize that the fronto-parietal system is patient

• Hypothesize that mesolimbic system is impatient.
• Then integrated preferences are quasi-hyperbolic

now t+1 t+2 t+3

PFC 1 1 1 1 …
Mesolimbic 1 0 0 0 …
Total 2 1 1 1 …
Total normed 1 1/2 1/2 1/2 …
 Relationship to quasi-hyperbolic model

• Hypothesize that the fronto-parietal system is patient

• Hypothesize that mesolimbic system is impatient.
• Then integrated preferences are quasi-hyperbolic

Ut = ut + ut+1 ut+2ut+3 

(1/)Ut = (1/)ut + ut+1 ut+2ut+3 
(1/)Ut =(1/)ut + [ut + ut+1 ut+2ut+3 

limbic fronto-parietal cortex

 Hypothesis:
Limbic system discounts reward at a higher rate than does the
prefrontal cortex.
1.0
mesolimbic system

prefrontal cortex
discount value

0.0
time
 5. Neuroimaging Evidence
McClure, Laibson, Loewenstein, and Cohen
Science (2004)
• Do agents think differently about immediate rewards and
delayed rewards?
• Does immediacy have a special emotional drive/reward
component?
• Does emotional (mesolimbic) brain discount delayed
rewards more rapidly than the analytic (fronto-parietal
cortex) brain?
Choices involving Amazon gift certificates:
Time
delay d>0 d’
Reward R R’
Hypothesis: fronto-parietal cortex.

Time

delay d=0 d’
Reward R R’
Hypothesis: fronto-parietal cortex and limbic.
 McClure, Laibson, Loewenstein, and Cohen
Science (2004)
Emotional system responds only to immediate rewards
7

T13

0
x = -4mm y = 8mm z = -4mm

VStr MOFC MPFC PCC

Neural activity

Seconds

Earliest reward available today

0.4%
Earliest reward available in 2 weeks
2s
Earliest reward available in 1 month
Analytic brain responds equally to all rewards
VCtx PMA RPar

x = 44mm
DLPFC VLPFC LOFC

0.4%

x = 0mm 2s

0 15
T13
Earliest reward available today
Earliest reward available in 2 weeks
Earliest reward available in 1 month
 Brain Activity in the Frontal System and
Emotional System Predict Behavior
(Data for choices with an immediate option.)

Brain Activity
0.05 Frontal
system
0.0
Emotional
System
-0.05

Choose Choose
Smaller Larger
Immediate Delayed
Reward Reward
 Conclusions of Amazon study
• Time discounting results from the combined influence of
two neural systems:
• Mesolimbic dopamine system is impatient.
• Fronto-parietal system is patient.
• These two systems are separately implicated in
‘emotional’ and ‘analytic’ brain processes.
• When subjects select delayed rewards over
immediately available alternatives, analytic cortical areas
show enhanced changes in activity.
 Open questions
1. What is now and what is later?
• Our “immediate” option (Amazon gift certificate)
did not generate immediate “consumption.”
• Also, we did not control the time of consumption.

2. How does the limbic signal decay as rewards are delayed?

3. Would our results replicate with a different reward domain?

4. Would our results replicate over a different time horizon?

 New experiment on primary rewards: Juice

McClure, Ericson, Laibson, Loewenstein, Cohen
(Journal of Neuroscience, 2007)
Subjects water deprived for 3hr prior to experiment

(subject scheduled for 6:00)

 A 15s 10s 5s
Time

i ii iii …
iv. Juice/Water squirt (1s )

B
(i) Decision Period (ii) Choice Made (iii) Pause (iv) Reward Delivery

Free (10s max.) 2s Variable Duration Free (1.5s Max)

15s

Figure 1
 Experiment Design

d  { This minute, 10 minutes, 20 minutes }

d'-d  { 1 minute, 5 minutes }
(R,R')  {(1ml, 2ml), (1ml, 3ml), (2ml, 3ml)}

d = This minute
d'-d = 5 minutes
(R,R') = (2ml, 3ml)
 Comparison with Amazon experiment:
Impatient areas (p<0.001) Impatient areas (p<0.01)

x = 0mm y = 8mm x = -4mm y = 12mm

Patient areas (p<0.001) Patient areas (p<0.01)

x = 0mm x = -48mm x = 0mm x = -48mm

Juice Amazon Both

only only

Figure 5
 Measuring discount functions using
neuroimaging data
• Impatient voxels are in the emotional (mesolimbic)
reward system
• Patient voxels are in the analytic (prefrontal and
parietal) cortex
• Average (exponential) discount rate in the impatient
regions is 4% per minute.
• Average (exponential) discount rate in the patient
regions is 1% per minute.
 Average Beta Area Activation, Actual and Predicted
2 1.5

(D=0,D'=1)
Normed Activation

(D=0,D'=5)

(D=10,D'=11)
1

(D=10,D'=15)

(D=20,D'=21)
.5

(D=20,D'=25)
0

0 5 10 15 20 25
Time to later reward

Actual Predicted
 Average Delta Area Activation, Actual and Predicted
2 1.5
Normed Activation

(D=10,D'=15)
1

(D=0,D'=1) (D=0,D'=5)
(D=10,D'=11)
(D=20,D'=21) (D=20,D'=25)
.5 0

0 5 10 15 20 25
Time to later reward

Actual Predicted
 Hare, Camerer, and Rangel (2009)

Health Session Taste Session Decision Session

4s
food item
presentation Rate Health Rate Taste Decide

+ + +
?-?s
fixation

Rate Health Decide

Rate Taste
 Rating Details

• Taste and health ratings made on five

point scale:
-2,-1,0,1,2
• Decisions also reported on a five point
scale: SN,N,0,Y,SY
“strong no” to “strong yes”
 What is self-control?
• Rejecting a good tasting food that is not healthy
• Accepting a bad tasting food that is healthy
 More activity in DLPFC in trials with
successful self control than in trials with
unsuccessful self-control

 p < .001
 p < .005
 Summary of neuroimaging evidence

• One system associated with midbrain dopamine

neurons (mesolimbic dopamine system) discounts at
a high rate.

• Second system associated with lateral prefrontal and

posterior parietal cortex responsible for self-
regulation (and shows relatively little discounting)

• Combined function of these two systems accounts for

decision making across choice domains, including
non-exponential discounting regularities.
 Outline
1. Experimental evidence for dynamic inconsistency.
2. Theoretical framework: quasi-hyperbolic discounting.
3. Field evidence: dynamic decisions.
4. Neuroscience:
– Mesolimbic Dopamine System (emotional, impatient)
– Fronto-Parietal Cortex (analytic, patient)
5. Neuroimaging evidence
– Study 1: Amazon gift certificates
– Study 2: juice squirts
– Study 3: choice of snack foods
6. Policy
 6. Policy
Defaults in the savings domain

• Welcome to the company

• If you don’t do anything
– You are automatically enrolled in the 401(k)
– You save 2% of your pay
– Your contributions go into a default fund
• Call this phone number to opt out of enrollment
or change your investment allocations
 Madrian and Shea (2001)
Choi, Laibson, Madrian, Metrick (2004)
401(k) participation by tenure at firm
100% Automatic
80% enrollment

60% Standard
40% enrollment

20%

0%
0 6 12 18 24 30 36 42 48
Tenure at company (months)
 Do people like a little paternalism?
Survey given to workers who were subject to automatic
enrollment:

“You are glad your company offers automatic

enrollment.”

Agree? Disagree?

• Enrolled employees: 98% agree

• Non-enrolled employees: 79% agree
• All employees: 97% agree

Source: Harris Interactive Inc.

The power of deadlines: Active decisions
Carroll, Choi, Laibson, Madrian, Metrick (2004)

Active decision mechanisms require employees to make an

active choice about 401(k) participation.
• Welcome to the company
• You are required to submit this form within 30 days of hire,
regardless of your 401(k) participation choice
• If you don’t want to participate, indicate that decision
• If you want to participate, indicate your contribution rate and
asset allocation
• Being passive is not an option
 401(k) participation by tenure
100%
Active Decision Cohort
80%
Fraction of employees ever

60% Standard enrollment cohort

participated

40%

20%

0%
0 6 12 18 24 30 36 42 48 54
Tenure at company (months)

Active decision cohort Standard enrollment cohort

 Simplified enrollment raises participation
Beshears, Choi, Laibson, Madrian (2006)

50% 2005
Fraction Ever Participating in

2004
40%

30%
2003
Plan

20%

10%

0%
0 3 6 9 12 15 18 21 24 27 30 33
Time since baseline (months)
 Extensions to health domain
Use automaticity and deadlines to nudge people to
make better health decisions
One early example: Home delivery of chronic meds
(e.g. maintenance drugs for diabetes and CVD)
• Pharmaceutical adherence is about 50%
• One problem: need to pick up your meds
• Idea: use active decision intervention to encourage
workers on chronic meds to consider home delivery
• Early results: HD take up rises from 14% to 38%
 Cost saving at test company
(preliminary estimates)
Rxs at Mail (annualized)

350,000
300,000 Annualized Savings
250,000
Plan $2,413,641
200,000 Before SHD
150,000 Members $1,872,263
After SHD
100,000
50,000 Total Savings $4,285,904
0

Now need to measure effects on health.

81
 Policy Debates

• Pension Protection Act (2006)

• Federal Thrift Savings Plan adopts autoenrollment (2009)
• Auto-IRA mandate (2009?)
• Consumer Financial Protection Agency (2009?)
– Default/privileged plain vanilla financial products
– Disclosure
– Simplicity
– Transparency
– Education
 $100 bills on the sidewalk
Choi, Laibson, Madrian (2004)

• Employer 401(k) match is an instantaneous,

riskless return
• Particularly appealing if you are over 59½ years old
– Can withdraw money from 401(k) without penalty
• On average, half of employees over 59½ years old
are not fully exploiting their employer match
• Educational intervention has no effect
 Education and Disclosure
Choi, Laibson, Madrian (2007)

• Experimental study with 400 subjects

• Subjects are Harvard staff members
• Subjects read prospectuses of four S&P 500
index funds
• Subjects allocate $10,000 across the four
index funds
• Subjects get to keep their gains net of fees
84
 Data from Harvard Staff
$581
Control Treatment
$516 $518
Fees salient
$494 Fees from
$451 random
allocation
$385 $431

$320
$255 3% of Harvard staff
in Control Treatment
put all $$$
85 in low-cost fund
 Data from Harvard Staff
$581
Control Treatment
$516 $518
Fees salient
$494 Fees from
$451 random
allocation
$385 $431

$320
$255 3% of Harvard staff 9% of Harvard staff
in Control Treatment in Fee Treatment
put all $$$ put all $$$
86 in low-cost fund in low-cost fund
 7. The Age of Reason
Agarwal, Driscoll, Gabaix, Laibson (2008)
 (1,2) Home Equity Loans and
Home Equity Credit Lines
• Proprietary data from large financial institutions
• 75,000 contracts for home equity loans and lines of
credit, from March-December 2002 (all prime
borrowers)
• We observe:
– Contract terms: APR and loan amount
– Borrower demographic information: age, employment status,
years on the job, home tenure, home state location
– Borrower financial information: income, debt-to-income ratio
– Borrower risk characteristics: FICO (credit) score, loan-to-
value (LTV) ratio
 Home Equity Regressions

• We regress APRs for home equity loans and credit

lines on:
– Risk controls: FICO score and Loan to Value (LTV)
– Financial controls: Income and debt-to-income ratio
– Demographic controls: state dummies, home tenure,
employment status
– Age spline: piecewise linear function of borrower age with
knots at age 30, 40, 50, 60 and 70.
• Next slide plots fitted values on age splines
 Home Equity Loan APR by Borrower Age

6.50

6.25
APR (Percent)

6.00

5.75

5.50

5.25

5.00
20
23
26
29
32
35

41
44
47
50
53
56
59
62
65
68
71
74
77
80
38

Borrower Age (Years)

 Home Equity Credit Line APR by Borrower Age

5.50

5.25
APR (Percent)

5.00

4.75

4.50

4.25

4.00
32

50
53
20
23
26
29

35
38
41
44
47

56
59
62
65
68
71
74
77
80
Borrower Age (Years)
 (3) “Eureka”: Learning to Avoid
Interest Charges on Balance Transfer
Offers
• Balance transfer offers: borrowers pay lower APRs
on balances transferred from other cards for a six-to-
nine-month period
• New purchases on card have higher APRs
• Payments go towards balance transferred first, then
towards new purchases
• Optimal strategy: make no new purchases on
card to which balance has been transferred
 Eureka: Predictions

• Borrowers may not initially understand / be informed

about card terms
• Borrowers may learn about terms by observing
interest charges on purchases, or talking to friends
– We should see “eureka” moments: new
purchases on balance-transfer cards should drop
to zero (in the month after borrowers “figure out”
the card terms)
• Study: 14,798 accounts which accepted such offers
over the period January 2000 to December 2002
 Propensity of Ever Experiencing a "Eureka" Moment by
Borrower Age

90%
85%
80%
75%
70%
Percent

65%
60%
55%
50%
45%
40%
32

36

40

44

48

52
20

24

28

56

60

64

68

72

76

80
Borrower Age (Years)
 Fraction of Borrowers in Each Age Group
Experiencing a Eureka Moment, by Month

60% Month One Month Two

Month Three Month Four
Month Five Month Six
50%
Percent of Borrowers

No Eureka
40%

30%

20%

10%

0%
18 to 24 25 to 34 35 to 44 45 to 64 Over 65
Borrower Age Category
 Seven other examples
• Three kinds of credit card fees:
– Late payment
– Over limit
– Cash advance
• Credit card APRs
• Mortgage APRs
• Auto loan APRs
• Small business credit card APRs
 Frequency of Fee Payment by Borrower Age

0.35
0.33
Fee Frequency (per month)

0.31
0.29
0.27
Late Fee
0.25
0.23 Over Limit Fee

0.21 Cash Advance Fee

0.19
0.17
0.15
23
26
29
32
35
38
41
44
47
50
53
56

62
65
68
71
74
77
20

59

80
Borrower Age (Years)
 Auto Loan APR by Borrower Age

9.50

9.25
APR (Percent)

9.00

8.75

8.50

8.25

8.00

Borrower Age (Years)

 Credit Card APR by Borrower Age

18.50

18.25
APR (Percent)

18.00

17.75

17.50

17.25

17.00
44

53

59
20
23
26
29
32
35
38
41

47
50

56

62
65
68
71
74
77
80
Borrower Age (Years)
 Mortgage APR by Borrower Age

13.00

12.75
APR (Percent)

12.50

12.25

12.00

11.75

11.50
20
23
26
29

35
38
41
44
47
50
53
56
59
62
65
68
71
74
77
80
32

Borrower Age (Years)

 Small Business Credit Card APR by Borrower Age

16.00

15.75
APR (Percent)

15.50

15.25

15.00

14.75

14.50

77
20
23
26
29
32
35
38
41
44
47
50
53
56
59
62
65
68
71
74

80
Borrower Age (Years)
U-shape for prices paid in 10 examples

– Home equity loans

– Home equity lines of credit
– Eureka moments for balance transfers
– Late payment fees
– Over credit limit fees
– Cash advance fees
– Auto loans
– Credit cards
– Small business credit cards
– Mortgages
 Salthouse Studies – Memory and Analytic Tasks

1.5

1.0 84

0.5 69

Percentile
50
Z-Score

0.0

-0.5 31

-1.0 16
Word Recall (N = 2,230)
Matrix Reasoning (N = 2,440)
-1.5 Spatial Relations (N = 1,618) 7
Pattern Comparison (N = 6,547)

-2.0
20 30 40 50 60 70 80 90
Chronological Age
Source: Salthouse (forth.)
 Dementia
Ferri et al 2005

Prevalence of dementia:
60-64: 0.8%
65-69: 1.7%
70-74: 3.3%
75-79: 6.5%
80-84: 12.8%
85+: 30.1%
 Cognitive Impairment w/o Dementia
(Plassman et al 2008)

Prevalence:
71–79: 16.0%
80–89: 29.2%
90+: 39.0%
 Regulation?
• Regulator creates a very broad safe harbor for
financial services (e.g., caps on mutual fund
fees, plain vanilla credit cards, mortgages
without prepayment penalties, etc…).
• An investor may conduct a financial transaction
that is outside the safe harbor if the investor is
advised by a fiduciary (with legal liability).
 Outline
1. Motivating experimental evidence
2. Theoretical framework
3. Field evidence
4. Neuroscience foundations
5. Neuroimaging evidence
6. Policy applications
7. The age of reason

A copy of these slides will soon be available on my

Harvard website.