As people grow older, one of the most significant decisions they may face is whether to remain in their current home or move to a retirement community. This decision is deeply personal and can be influenced by many factors, such as health, finances, proximity to family, and personal preferences. However, whether older adults realize it or not, a concept called behavioral economics also plays a critical role in shaping these senior living decisions.
Behavioral economics is the study of how psychological, social, cognitive, and emotional factors and biases blend together to influence people’s decisions in real-world, economics-related situations. As this concept suggests, at times, the reasoning behind our decisions may differ from more traditional economic theories, which assume that people are rational and make well-informed decisions. Indeed, behavioral economics recognizes that people’s choices are often heavily biased by our emotions and environments.
We’ve written before about the role emotions can play in a senior living decision, but let’s go one step further. Let’s examine a few of the key behavioral economics-related cognitive biases that may influence — and possibly delay — the senior living decision-making process.
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Status quo bias
Status quo bias refers to people’s tendency to prefer things to stay the same rather than change, even when that change might lead to a better outcome. For older adults who are considering whether to stay in their current home or proactively move to a retirement community, this bias can significantly affect their decision-making.
The psychological and emotional attachment to one’s home, especially one that’s been lived in for many years, can cloud people’s judgment and even create inertia. That familiarity — however large, maintenance-intensive, or otherwise impractical for aging occupants the home may be — feels comfortable and secure. The idea of voluntarily uprooting from this place, with its memories and routines, can feel overwhelming or even unnecessary.
The status quo bias can also lead older adults to overlook or even resist the potential advantages of moving to a retirement community, such as living in a safer, more supportive environment. It can cause them to delay considering the practical issues that can come with aging in place — such as mobility challenges or health concerns — which might make the home less accessible or even unsafe over time.
Loss aversion
Loss aversion is a concept from prospect theory, which suggests that people feel the pain of losses more intensely than the pleasure of gains. In the context of senior living decisions, loss aversion often manifests in the fear of losing autonomy, independence, and personal control — qualities that are associated with staying in one’s own home.
This emotional response can cause older adults to underestimate the potential benefits of moving to a retirement community. For some, it may feel like giving up control over their living situation, which can be a powerful deterrent. It might be viewed as a loss of freedom or a sign of frailty — that they can no longer care for themselves or manage household tasks.
Of course, some retirement communities do a better job of cultivating independence and autonomy than others. But there is a very real possibility that a senior living move will also offer advantages like greater safety, better social opportunities, and a more manageable, carefree living situation.
Endowment effect
The endowment effect occurs when people ascribe more value to things merely because they own them. When it comes to deciding whether to stay in one’s current home or move to a retirement community, older adults may overvalue their property due to their emotions around it. This skewed perception of the home’s value can make it harder for them to rationalize leaving or selling it.
For example, a person might feel that their home is worth more than it actually is because of the memories attached to it and their sense of ownership — even if it’s aging/dated and not as functional as it once was. This can make it difficult for individuals to objectively assess whether a move might offer a better quality of life in the long term.
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Mental accounting
Mental accounting refers to the way people categorize and treat money differently depending on its source or intended use. For older adults who are making senior living decisions, mental accounting can lead to irrational decision-making, where the person continues to pour resources into a home that no longer serves their best interests.
For instance, many older adults have mentally categorized their home as a major asset and source of retirement security. They may view selling that home as a financial windfall that could be reinvested or used for healthcare, travel, or other post-retirement needs.
At the same time, the costs associated with moving to and living in a retirement community, such as any entrance fee, monthly fees, and/or long-term care expenses, might feel harder to justify mentally. It can feel like an additional “expense” even though the result may actually be lower maintenance costs, improved healthcare support, and more community amenities.
Conversely, older adults may underestimate or ignore the hidden costs of staying in their current home — things like maintenance expenses, property taxes, home modifications, and the potential need for paid in-home care. These hidden costs may not be immediately recognized because they don’t fall into the same mental accounting category as the retirement community’s costs, even though they can be just as expensive or even costlier.
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Anchoring effect
Anchoring occurs when individuals’ decision-making relies too heavily on an initial piece of information or a past experience (the “anchor”), even if that information is irrelevant or outdated.
When it comes to senior housing, one common anchor is the value of the current home. Many people who have owned their homes for decades may anchor their expectations about living expenses and living space to what they’ve always known, making it difficult to objectively analyze the cost-benefit of staying in their home versus moving to a retirement community.
People might also be anchored to earlier ideas of what a retirement community will offer, based on past experiences. For instance, they might have an initial concept of retirement communities as places that are institutional, lack the comforts of home, and deprive residents of privacy and independence. This stereotype is often based on their own parents’ or grandparents’ long-ago experiences in a nursing home.
Even as many senior living communities have evolved and improved over the years, becoming vibrant communities that enable residents to remain active and autonomous, that initial anchor can influence an older adult’s decision to remain in their current home.
Overconfidence bias
Sometimes called the Dunning-Kruger effect, overconfidence bias is the tendency for people to overestimate their own abilities, knowledge, or understanding of a situation, often leading them to underestimate potential risks.
In the context of aging, this may manifest as a person’s belief that they will always be able to perform the tasks associated with homeownership such as repairs, cleaning, and yard work, while also managing their own healthcare needs. They might also underestimate their future need for assistance, dismissing the possibility of ever needing in-home care or being unable to perform certain activities of daily living (ADLs).
Overconfidence in the ability to “get by” in one’s current home can be particularly pronounced when older adults do not fully acknowledge the potential for physical or mental decline over time. Such age-related issues can further complicate maintaining a home or living independently. They can also delay the decision to move to a more supportive environment, even when it’s clear that doing so would be more practical, safer, and offer a variety of benefits in the long run.
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Framing effect
The framing effect refers to how people’s decisions are affected by how information is presented. People’s emotional response to the framing of senior living options can heavily influence their ultimate decision, even if the practical benefits of a retirement community move remain the same.
For example, if a retirement community is described in terms of freedom, community, and new opportunities, it may be seen as a positive and exciting option. Language such as “gaining access to a community of peers,” “a place to enjoy an active lifestyle,” or “enjoying more support and freedom from maintenance responsibilities” can make the decision to move seem much more appealing.
On the other hand, if the option to move to a retirement community is presented as “a place for people who can no longer live independently,” older adults may be less likely to consider it as a viable option. Additionally, terms like “being forced into a facility” or a place for “elderly people who need help” can evoke fear and resistance.
Social proof and peer influence
Humans are social creatures, and the choices of others, whether children, friends, or neighbors, often influence our own decisions. Social proof can also come in the form of media or cultural norms.
For many older adults, peer influence can play a significant role in the decision to move to a retirement community. If friends or family members have had positive experiences with moving to and living in retirement communities, a person may be more inclined to consider it.
On the other hand, if an older adult is part of a social circle that places a high value on aging in place or views retirement communities negatively, that person may feel pressured to stay in their current home, even if it’s not the best decision for their long-term health or wellbeing.
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Understanding behavioral economics in senior living decisions
Just about every decision we make takes into account a blend of our emotions and our rational brains. It’s what makes us evolved humans. But as we see with these cognitive biases, sometimes we create emotion-based barriers to making well-informed, rational decisions.
The decision about whether to remain in one’s current home or move to a retirement community is a deeply personal one, shaped by a complex array of factors. Behavioral economics offers valuable insight into why people often make decisions that aren’t purely based on logic or financial considerations but are instead influenced by cognitive biases, emotions, and social dynamics.
For instance, we know that roughly 3 in 5 people will require long-term care services at some point in their life. Yet many older adults are hesitant to make a proactive move to a retirement community where they could often more easily receive the care services they need. Instead, they are held back by their own feelings and biases related to growing older.
As noted by behavioral economics expert Koen Smets, “Biases are not natural laws. They are broad tendencies, which are not uniformly shared by everyone.” Understanding and recognizing these cognitive fallacies can actually help us improve our decision-making skills.
When navigating senior living choices, such self-awareness can help older adults and their loved ones better weigh the pros and cons of staying at home versus moving to a retirement community. With this heightened clarity, senior living prospects can come to a decision that ultimately best supports their long-term wellbeing, safety, and quality of life.
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