Aging and Investing: The Risk of Cognitive Impairment
David Laibson is a professor of economics at Harvard University, Cambridge. I spoke with him about how the risks of cognitive impairment and dementia impact investing decisions.
—Charles Rotblut, CFA
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Charles Rotblut (CR): You have said that there are two key categories of cognitive function. Could you explain what they are?
David Laibson (DL): The two categories of intelligence are fluid intelligence, which in essence is our ability to solve a novel problem, and crystallized intelligence, which is our ability, through life course experience, to accumulate knowledge and ultimately solve familiar problems. Fluid intelligence would be the kind of intelligence used to solve a typical IQ question: Take a two-dimensional object, fold it along the lines, and tell us what three-dimensional object it becomes. Crystallized intelligence would represent things like the experience that would enable someone to understand what an expense ratio is because they’ve been reading prospectuses for 30 years.
CR: And how do those change with age?
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