The Neuroeconomics of Decision-Making in the Aging Brain: The Example of Long-Term Care
Hsu M, Lin HT & McNamara P. In Kevin McCabe and Daniel Houser, eds. Advances in Health Economics and Health Services Research, 2008.Abstract
Purpose – Long-term care (LTC) services assist people with limitations in the ability to perform activities of daily living (ADLs) as a result of chronic illness or disabilities. We discuss possible behavioral explanations for the under-purchasing of LTC insurance, as well as the current state of knowledge on the neural mechanisms behind these behavioral factors.
Findings/approach – Ideas from behavioral economics are discussed, including risk-seeking over losses, ambiguity-preferring over losses, hyperbolic discounting, and the effect of the aging process on the underlying neural mechanisms supporting these decisions. We further emphasize the role of age, as aging is a highly heterogeneous process. It is associated with changes in both brain tissue as well as cognitive abilities, and both are characterized by large individual differences. Therefore, understanding the neural mechanisms is vital to understanding this heterogeneity and identifying possible methods of interventions.
Research implications – LTC financing and insurance is a looming issue in the next 10–20 years. It is important to understand the process by which people make decisions about LTC insurance, heterogeneity in decision processes across individuals, and how these decisions interact with changes in policy and private LTC insurance markets.
Originality/value of the chapter – By providing an overview of the current state of knowledge in behavioral economics of LTC insurance and the neuroscience of aging, this chapter provides some new directions in the emerging area of neuroeconomics of aging.