nep-neu New Economics Papers
on Neuroeconomics
Issue of 2017‒01‒22
three papers chosen by

  1. Cognitive Aging and the Capacity to Manage Money By Anek Belbase; Geoffrey T. Sanzenbacher
  2. If Life Throws You Lemons Try To Make Lemonade: Does Locus of Control Help People Cope with Unexpected Shocks By Steven Stillman; Malathi Velamuri
  3. Retirement and Cognitive Functioning: International Evidence By Raquel Fonseca; Arie Kapteyn; Gema Zamarro

  1. By: Anek Belbase; Geoffrey T. Sanzenbacher
    Abstract: While Americans often worry about not having enough money in retirement, they seldom worry about their capacity to manage that money.1 At first glance, this lack of concern appears justified because many financial activities are so routine – like paying the monthly bills on time. Such activities draw on “crystallized” intelligence, which is accumulated knowledge that increases with age. But normal cognitive aging can lead to financial mistakes because people lose much of their “fluid” intelligence – the capacity to process new information – by the time they reach their 70s or 80s. And a minority develop a cognitive impairment that severely erodes financial capacity. This brief, the third in a series of three, reviews the literature to assess how cognitive aging affects the capacity to manage money during ages 70-90. The first brief provided a primer on cognitive aging, and the second brief assessed its effects on the ability to work during ages 50-70. The discussion proceeds as follows. The first section explains how cognitive aging could potentially affect the ability to manage personal finances. The second section examines the impact of normal cognitive aging on financial capacity. The third section explores the effects of cognitive impairment on financial capacity. The final section concludes that: 1) most people who experience normal cognitive aging can continue managing their money in their 70s and 80s, but some, especially financial novices who take over money management after the death of a spouse, will need help; 2) most people with a cognitive impairment will need help managing their money to prevent fraud or abuse; and 3) providing this assistance effectively will require overcoming several obstacles.
    Date: 2017–01
  2. By: Steven Stillman (Free University of Bolzano‐Bozen, Faculty of Economics and Management); Malathi Velamuri (Chennai Mathematical Institute)
    Abstract: A number of recent papers have found that non-cognitive skills and in particular, locus of control (LoC), are important predictors of success in life in terms of both traditional labor market and socioeconomic outcomes, and measures of subjective wellbeing. Specifically, the literature has found a strong correlation between having an internal locus of control and standard measures of success and happiness. In this paper, we examine whether having an internal LoC also helps people manage the consequences of two mainly unanticipated negative shocks, being a crime victim and experiencing a serious illness or injury. We find that these events have large negative consequences on both subjective wellbeing and objective economic outcomes. For men, these shocks have smaller effects on subjective wellbeing when they are more internal but that the long-run effects on income are no smaller. On the other hand, for women with an internal LoC, we find some evidence that these shocks have larger impacts. We draw on the psychology literature to discuss the results.
    Keywords: locus of control, crime, illness, wellbeing, HILDA
    JEL: I31 J16
    Date: 2017–01
  3. By: Raquel Fonseca; Arie Kapteyn; Gema Zamarro
    Abstract: We survey the recent literature on the effects of retirement on cognitive functioning at older ages around the world. We describe results from studies using similar data, definitions and methods to capture causal effects. The studies yield widely varying results. Most papers find that being retired leads to a decline of cognition. However, the size and significance of the estimated effects vary dramatically depending on methods. We replicate several of these results using the same data sets. We discuss the factors that are likely causing the differences observed, and find that results are sensitive to the inclusion of “country effects”, suggesting a key role for unobserved differences across countries that affect both retirement ages and cognitive decline.
    Keywords: cognition, retirement, aging, country fixed effects
    JEL: C26 I14 J14 J26
    Date: 2016

General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.