Life After Full-time Work Blog

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#190 Our Thinking Changes As We Age

And being aware of how it changes makes me feel freer!


Note: There’s a podcast I’ve just heard that expresses all this much better. The link is at the end.


It’s well known that human beings are loss averse. By this is meant that, if (as an example) we’re given a 50/50 chance of winning or losing some specific amount (let’s say $500) based on a heads-or-tails toss of a coin, we tend not to want to play. Unless, of course, the amount is small (let’s say $10), and the sheer thrill of playing is worth it, even if we lose – in other words, we’re willing to pay to buy the thrill; but as a serious investment proposition, no. What we tend to want, in an example such as this, is that the game is biased in our favor: perhaps $500 either way, but with the odds favoring us, say a 70% chance of winning versus only a 30% chance of losing; or, if the odds stay at 50/50, then a win is worth $700 versus a loss costing us only $300.

This attitude of loss aversion has been documented through countless research studies, and it is one of the main conclusions of the brilliant research (now known as “prospect theory”) done by Nobel Prize winner Dr Daniel Kahneman and his research partner Dr Amos Tversky (who, unfortunately, passed away before he too could be awarded a share of the Prize).

When you think about it, this bias, built into our brains, must have been very useful to human beings in our early days, when our survival as a species was in question. Taking chances was clearly something to be avoided, if we wanted to survive, unless the chance of failure was low or carried only a small loss. If we had been a species taking big chances, we probably wouldn’t be around today.

And our brains have not changed very much over the millennia: it’s just the situations we face today that are very different. But our brains aren’t.

I first came across loss aversion when I was studying behavioral finance, as a pension fund investment consultant many decades ago. It was totally consistent with the way in which pension fund fiduciaries behaved. Limit your losses before you go for gains. I tried to express it in a way that was succinct and easy for clients to remember: First survive, then thrive.

It’s taken for granted these days. So I was very surprised to find recently that, though the general notion of loss aversion still applies, there are circumstances in which our mental attitudes change. I’ll expand on this in a moment.

A second well-known characteristic of human beings, as we make decisions, is that we look at the near future as much more important than the long-term future. This is often called hyperbolic (that is, exaggerated) discounting: a jargon-based way of saying two things.

One is that we discount the future. In other words, the present is far more important to us than the future, and given a choice between having something soon and something in the medium to long term, we place far more value on near-term gratification.

More than that: we discount the future inconsistently. We have, for example, no problem saying that something now is worth much more to us than something in a year’s time; but we place virtually no difference between getting something in 25 years and getting that same something in 26 years. That one year of postponement makes little difference to us if it’s in the distant future, but a big difference if it’s fairly close to us.

All of that too is now accepted wisdom. And again, I was surprised to find recently that, though the general statement still applies, it’s not quite as clean as my quick description of our behavior makes it appear.

That’s what this blog post is about: the fact that that accepted wisdom is more nuanced than is generally known. And it leads me to someone I’ve admired for a long time: Dr Laura Carstensen, the Fairleigh S. Dickinson Jr Professor in Public Policy and Professor of Psychology at Stanford University, and founding director of the Stanford Center on Longevity.


Laura has influenced the way I view life, following her book A Long Bright Future: happiness, health and financial security in an era of increased longevity. Essentially it says: if we knew we were going to live 100 years, would we still live our lives the same way? Go to school, work, retire, as has become customary – and then keep that retirement stretched out until 100? No, we wouldn’t, we’d pace our 100 years differently. In another blog post some time I’ll outline her ideas – but for now let’s just say that her book has changed my thoughts on life.

So, when I got a chance to chat one-on-one with Laura at a friend’s gathering recently, it was like a gift to me. I have recently been contemplating the role of chance in my life, and when I mentioned this to Laura, she promised to send me a paper by Dr Albert Bandura, the most highly cited figure in contemporary psychology, on the role of chance in life, a paper which takes my own ideas much further. But that’s incidental to this blog post.

As we chatted about the choices we make, Laura mentioned two of her own papers, and sent them to me as well. And, once more, she has had a profound effect on my thinking.

One paper was on age differences in preferences.

It’s obvious that the amount of time we have left to live shrinks as we age. What isn’t obvious is that we seem implicitly to take our shrinking survival years into account when we make choices, essentially making those choices over a shrinking time horizon. We don’t just think: oh well, that’s in the future, pretty much an indefinite time away (as we do when we’re young). When we’re much older, in particular, we’re conscious of the fact that our choices will play out over a much shorter time frame. And (surprisingly to me, and I suspect to most people) that shrinking time horizon changes our preferences. What we value much more highly, when the future isn’t an indefinite period, is things with emotional meaning in the present. But that makes total sense, as I think about it. (And I’m conscious of feeling that way myself.)

More surprising (but still making total sense to me) is that our negativity bias (our loss aversion) in early life changes to a positivity bias in middle life and late adulthood. Not that it needs to make total sense to me, of course – it would be true regardless of my views – but the conclusions resound all the more strongly for that. And remember: these conclusions in the paper are based on rigorous experiments in which large numbers of people of different ages were given choices to make, choices that would be able to have different conclusions drawn from them, and these were the conclusions that came through.

A thought that occurs to me is that perhaps that negativity-to-positivity change as we age is one of the reasons why the U-curve of happiness by age (see Chapter 11 in my Happiness book) starts to turn up after bottoming out. I don’t know which is cause and which is effect – but the two are consistent.

The other paper was much more numerical, and took me longer to process. What fascinated me particularly was that it involved experiments associated with neuroimaging, that is, checking which parts of the brain are activated when choices of various kinds are considered and decisions are made. Again, the conclusion led away from conventional wisdom. It was that, as we age, we tend to consider monetary gain more importantly than monetary loss. In other words, we play down the impact of a loss, and play up the impact of a gain. This seems directly opposite to the loss aversion that we’ve known as a human characteristic. Apparently, though, it’s more a characteristic of younger humans, and not so much with older ones. When we have less time ahead of us, we’re thinking of thriving more than of surviving. That makes sense to me: at this age most of my surviving is behind me, and I look forward much more to thriving in the time I have left.

Anyway, put these two of Laura’s papers together, and they change what I have learned about human choices. Not only that: they have put me more at ease with myself, as I think about achieving positive outcomes rather than avoiding negative outcomes, and I think about emotional rather than material satisfaction. I feel somehow freer – and I hope this makes you feel that way too.


The podcast is Hidden Brain, hosted by Shankar Vedantam, and the episode I’m referring to features Laura, explaining her research much more clearly and fully than I’ve done here. In fact I’m going to use that interview to take the subject matter of this post further, in a subsequent post.



As we age our shrinking time horizon influences us to focus more on gain than on loss, and on emotional rather than material satisfaction.



I have written about retirement planning before and some of that material also relates to topics or issues that are being discussed here. Where relevant I draw on material from three sources: The Retirement Plan Solution (co-authored with Bob Collie and Matt Smith, published by John Wiley & Sons, Inc., 2009), my foreword to Someday Rich (by Timothy Noonan and Matt Smith, also published by Wiley, 2012), and my occasional column The Art of Investment in the FT Money supplement of The Financial Times, published in the UK. I am grateful to the other authors and to The Financial Times for permission to use the material here.

2 Responses to “#190 Our Thinking Changes As We Age”

  1. Ted Harris says:

    It will be interesting to see what research shows in future generations. I also wonder if there are cultural differences?

    Lots of interesting numbers are coming out on millennials, and particularly millennial males. As more women are delaying it, or choosing not to marry, and women are outnumbering men in US colleges. Behaviour and behavioural economics !

    Longevity is increasing, but healthy longevity isn’t. This doesn’t bode well for retaining retirement income, particularly if we still want to retire at 65 – or earlier.

    Recent stats show US longevity is declining and obesity is virtually epidemic. I’m not saying that they are definitively cause and effect.

    We must remember that history shows us that the future isn’t always forward.

    • Don Ezra says:

      Thanks for the observations, Ted — I’ll rely on you to keep me informed! One quick comment on declining US longevity — the projected decline is based on the assumption that recent mortality rates continue forever, and those rates are much higher than usual because of Covid, so I’m guessing that the decline is a temporary phenomenon.

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