Gaining knowledge is costly. It takes time, effort,
and money. Rational decision-makers will partake in this activity only if the
risk-adjusted excess returns from it are positive. Since the risk associated
with investing in gaining knowledge has both a systematic and idiosyncratic
component to it, if the individual is able to diversify the unsystematic risk
by accumulating varied and less correlated knowledge items, the relevant risk
for computing returns to knowledge is only the systematic component. Thus, it
may be dominant for a young person to garner knowledge in uncorrelated domains.
In this context, education systems that force an individual to specialize may
be responsible for reducing overall returns to knowledge for the individual and
for society more broadly. Further, the value of specialized knowledge declines
in a regime of high volatility as the aggregate option value of the portfolio
will be higher if it is constructed with diverse and uncorrelated knowledge
components.
The value of knowledge, however, declines with age.
Both the returns to knowledge as well as any diversification advantages that
exist from varied knowledge decline sharply after a certain age. Thus, it is
puzzling why older people will engage in the accumulation of knowledge in
diverse domains. It has been observed that individuals take on foreign
knowledge domains, such as new languages, music, literature, and even science
after retirement. Since the computable and observable returns from these
apparently irrational activities are negative, it has to be that there are
benefits that are intangible. Such benefits may include an incremental
extension of life by keeping the brain active and packets of happiness
emanating from gameplay if knowledge-seeking is constructed as a game. These
are difficult to measure and may depend on the individual.
As the expiration date of an individual is
predictable within reasonable error bands, it may be possible to tease out the
motivation for knowledge activities through longitudinal studies. Controlling
for the individual’s mental deterioration with age, it is possible that the
individual will continue to enhance the diversity of her knowledge portfolio.
If the extension of life is the dominant objective, this activity should
decline over time with a sudden drop closer to expiry. If gameplay drives the
motivation, it should hold steady and perhaps even increase as the individual
nears the irreversible outcome.
A diverse portfolio of knowledge appears dominant
whatever age one is, except very close to expiry.