Why do we get more conservative (little ‘c’) as we get older? Trying out new things pays off less when there’s less time left to benefit from the upside. That’s a simple story based on declining patience.
But there’s another reason which could kick in at middle age when there is still plenty of life left to live. Think of life as a sequence of gambles presented to you. They come with labels: gamble A, gamble B, …, etc. Every time you get the chance to try gamble A its a draw from the same distribution and you get more information about gamble A.
Suppose your memory is limited. What you can remember is some list of gambles that you currently believe are worth taking. When you have the opportunity to take a gamble that is on the list, you take it. When you are presented with a gamble that is not on the list you have a decision to make. You could try it, and if it looks good you can put it on your list but then you have to drop something else from your list. Or you can pass.
As time goes on, even though you don’t remember everything you once tried and then removed from your list, you know that there must have been a lot of those. And so when you are presented with an option that is truly new, you have no way of knowing that and your best guess is that you have actually tried it before and discarded it. So you pass.
(drawing: Stuck In Your Head from f1me.)
35 comments
Comments feed for this article
November 29, 2010 at 11:20 pm
MikeY
no need for bad memory, just capacity constraints – imagine always always take each gamble as long as the last 7 (+/-2) had a payoff above some cutoff. Since the outcomes are random, eventually every gamble will hit a rough patch and you will discard it. In old age we will have discarded many gambles.
November 29, 2010 at 11:34 pm
rd
aren’t bad memory and capacity constraints same thing – if you’re referring to capacity for retaining data – otherwise why not use data on results of gambles before last 7. maybe you’re referring to a recency bias
other reason for increasing conservatism – ego/confidence. the older you are when you try something new – and change your ways – the more mistakes you’ve implicitly made in the past (by not doing the new thing you just learned is better and thus should have been doing all along). the more mistakes, the more poorly it reflects on your judgment
November 30, 2010 at 9:24 am
MikeY
don’t think so – Jeff’s theory has people forgetting whether they had ever taken gamble X. I’m saying people remember, but that memory only goes back so far. He is assuming a dumber agent than I am. Weird since he’s econ and I’m psych, but there you go.
November 29, 2010 at 11:40 pm
Wife
Nice drawling!!
November 30, 2010 at 6:08 am
jeff
My dear, you know me better than that. I am borrowing these drawings from here: f1me.net.
November 29, 2010 at 11:44 pm
Wife
Darn… late night = sleepiness = cannot spell… I got to say you are great with stick drawings. 🙂 Maybe you’ll have an advantage in Pictionary but you won’t be famous for the drawing.
November 30, 2010 at 2:55 am
Lones Smith
Marty Weitzman’s (1979) “Optimal Search for the Best Alternative” — the most readable _Econometrica_ article of all time 🙂 — has this flavor of declining riskiness of gambles taken on without any boundedness of memory. Instead, he assumed that you can only take on one option, and thus optionality considerations alone force an increasing conservativeness. This might be a more standard framework to build on.
Awesome stickman! 😀
November 30, 2010 at 11:31 am
jeff
lones: the stickman is due to Stephanie Yee: http://www.f1me.net
December 1, 2010 at 4:04 pm
MikeY
Jeff, you should start picking drawings and composing blog posts on a related topic, rather than the other way around (or maybe you’re already doing it this way?)
November 30, 2010 at 6:14 pm
mike
More to lose.
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