via Wall Street Journal
How well do you remember the last financial crisis? Can you clearly recall what happened to your finances?
Most people are pretty confident in the accuracy of their memories. Unfortunately, decades of research suggest their confidence is likely misplaced. And that overconfidence can cost them, especially as they age.
The human brain isn’t like a computer hard drive; rather, it is full of quirks and blind spots, which can make it difficult for investors to remember exactly how much the S&P 500 lost between 2007 and 2009. (Answer: the S&P lost more than 50% of its value.) These blind spots can have serious consequences, leading people to take far more risk than they can actually afford.
New research suggests that the distortions and gaps in our memory change as we get older. While most people assume that our memory simply gets worse over time, the reality is more subtle and complicated. Older adults have more experience, and perhaps the benefit of perspective, but they also have to deal with specific biases that influence the details of what they remember.