The Optimal Mix of Experience and Cognitive Ability

"Optimal" is a fascinating concept. I love trying to determine the optimal point across multiple axes and stave off diminishing returns.

In an earlier post I noted that the optimal time to start a company might be age 27 — you have some experience but not too much experience to overly cloud or bias your thinking.

This Wall Street Journal article (free) notes that people make better personal finance decisions as they get older, since "the voice of experience" is critical to smart money decisions. Excerpt:

Cognitive ability — being economists they call it "analytic capital" — deteriorates steadily beginning at age 20, they say, citing psychological research. That decline is partially offset by what they call "experiential capital," the savvy that grows with experience.

The two lines cross in middle age, they hypothesize. At younger ages, the lack of experience offsets analytical ability; at older ages, declining cognitive abilities offset experience.

It’s interesting to think about what the axes are in different lines of work and in what direction they point as you age.

(Hat tip: Freakonomics)

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