Older Americans forced to postpone retirement because of stock market losses often continue to make risky investments. These decisions may hurt not only the individuals who make them but the economy as a whole.

Yet little research has tried to understand how the aging brain processes these critical investment decisions. A new study by Camelia M. Kuhnen (Assistant Professor of Finance at the Kellogg School of Management) and colleagues Gregory R. Samanez-Larkin (doctoral student at Stanford University), Daniel J. Yoo (research assistant at Stanford University), and Brian Knutson (Associate Professor of Psychology at Stanford University) offers some clues. Their research, published in the The Journal of Neuroscience, finds that older adults tend to make mistakes when choosing riskier investments because of “noisy” value signals in their brains.

The study used brain-scanning equipment to compare the brains of younger adults to older adults as they played a fast-paced investment game. Examining the responses of older adults, Kuhnen and colleagues found a correlation between risky investments and reactions in the brain’s reward circuitry, specifically a region in the emotional brain called the nucleus accumbens.

“We found older adults made more mistakes,” Kuhnen says. “They seem unable to represent value accurately in the nucleus accumbens area.”

Psychological research from other groups has shown that older adults disproportionately anticipate gains over losses when choosing risky assets, but Kuhnen says her study was the first to identify the region in the brain where these age-related mistakes likely occur. This latest study may help explain why older adults seem susceptible to investment frauds. Scam artists often demand quick decisions, which tap into the emotional brain. Kuhnen says her research suggests that elderly investors will make better decisions when they have time to engage their rational brain and consider their choices.

“When you take a long time to think, it is not clear the emotional brain will play as important a role,” she says. The results also challenge the popular notion that older adults are inherently conservative investors, Kuhnen says.