Julie R. Agnew

Portfolio Choice and Trading in a Large 401(k) Plan

We study nearly 7,000 retirement accounts during the April 1994-August 1998 period. Several interesting patterns emerge. Most asset allocations are extreme (either 100 percent or zero percent in equities) and there is inertia in asset allocations. Equity allocations are higher for males, married investors, and for investors with higher earnings and more seniority on the job; equity allocations are lower for older investors. There is very limited portfolio reshuffling, in sharp contrast to discount brokerage accounts. Daily changes in equity allocations correlate only weakly with same-day equity returns and do not correlate with future equity returns.

Asset Allocation and Information Overload: The Influence of Information Display, Asset Choice and Investor Experience

This paper investigates three common differences among DC plans that may lead to varying degrees of information overload. We hypothesize that information overload is one reason DC participants often choose the default options. In two experiments, we manipulate the display of the investment information, the number of choices offered, and the similarity of these choices. In addition, we measure the financial knowledge of the participants. We test how these factors influence the participant’s feelings of information overload, decision satisfaction and choice of the default. The main contribution of this analysis is that it explores the interaction between the individual’s tested financial knowledge and the manipulated plan features. In our study, women with relatively lower salaries and less education tend to fall into our low knowledge category. Our findings do show that changes to plan design can help some individuals. We find individuals with above average financial knowledge do report significantly less overload when given fewer investment choices. This confirms previous research that plan design is important. Our results also show that financial knowledge plays a large role in who opts for the default. We find that low knowledge individuals opt for the default allocation more often than high knowledge individuals (experiment one: 20% vs. 2%). Our findings suggest individuals with below average knowledge are simply overwhelmed by the investment decision in general. Altering the plan by offering investment information in a more easily comparable format or by reducing the choices offered does not attenuate the low knowledge individuals’ feelings of overload. The findings suggest that the success of certain plan features depends strongly on the financial background of the participant. The results emphasize the importance of plan design, especially the careful selection of plan default options, and the need to improve the financial literacy of participants.

Do Behavioral Biases Vary across Individuals? Evidence from Individual Level 401(k) Data

This paper investigates whether some individuals are prone to behavioral biases in their 401(k) investments. Using demographic data and allocation information for over 73,000 employees, I examine two allocation biases and a participation bias. The findings suggest that higher salaried employees tend to make significantly better choices. Participants who earn

Financial literacy and retirement planning in Australia

100, 000 hold 12. 7% less in company stock, are 3% less likely to follow the framing 1/ n heuristic, and are 37.7% more likely to participate than those earning

Trust, plan knowledge and 401(k) savings behavior

46, 000. Women make better choices in two of the three cases and I find evidence of mental accounting.

Superannuation Knowledge and Plan Behaviour

Financial literacy and numeracy are closely tied. Furthermore, financial literacy has been shown to relate to important financial behaviors. This study examines the relationship between financial literacy and retirement planning using a measure that includes questions requiring numeracy. We implement a customized survey to a representative sample of 1,024 Australians. Overall, we find aggregate levels of financial literacy similar to comparable countries with the young, least educated, those not employed, and those not in the labor force most at risk. Our financial literacy measure is positively related to retirement planning in our sample.

First Impressions Matter: An Experimental Investigation of Online Financial Advice

Plan knowledge and trust in financial institutions – two variables missing from standard neoclassical or behavioral models of decision-making – are strongly correlated to 401(k) savings behavior based on results from this paper. In voluntary enrollment settings, plan knowledge and demographic characteristics are related to participation in a 401(k) plan. In automatic enrollment settings, trust in financial institutions and knowledge of an available plan match are related to participation. Although this study cannot prove causality of the relationships, it does extend our understanding of the complex factors underlying savings choices. Policy implications are discussed.

An Experimental Study of the Effect of Market Performance on Annuitization and Equity Allocations

This paper presents new evidence from a national survey of non-retired individuals with superannuation accounts between the ages of 25 and 65. Fielded in June of 2012, the survey responses suggest that Australians often are ill informed about many important features of the superannuation system. This lack of retirement system knowledge is consistent with findings in other countries. Specifically, the survey suggests that Australian respondents are most challenged by questions associated with the access age to their superannuation savings, the risky composition of balanced funds (a popular default investment option), and the tax treatment of superannuation contributions and investments. Regression analysis suggests a relationship between superannuation knowledge and savings behaviour. The results provide motivation for further research in the area and suggest more can be done to educate individuals about the superannuation system.

Individual Judgment and Trust Formation: An Experimental Investigation of Online Financial Advice

We explore how individuals assess the quality of financial advice they receive and how they form judgments about advisers. Using an incentivized discrete choice experiment, we show that first impressions matter: consumers more often follow advisers who dispense good advice before bad. We demonstrate how clients’ opinions of adviser quality can be manipulated by using an easily replicated confirmation strategy that depends on the quality of the advice and the difficulty and order of the advice topics. Our results also reveal how clients benefit from their own past experience and how they use professional credentials to guide their choices. Data, as supplemental material, are available at https://doi.org/10.1287/mnsc.2016.2590. This paper was accepted by John List, behavioral economics.

The Reluctant Retirement Trader: Do Asset Returns Overcome Inertia?

Although researchers have studied the annuity puzzle for years, it has only recently been analyzed from a behavioral finance standpoint. This paper adds to this new stream of literature by using experimental methods to investigate how market performance affects the decision to annuitize. Using a large-scale, controlled laboratory experiment, this paper finds evidence that excessive extrapolation may be influencing this decision. In addition, we find that past market performance influences subsequent portfolio allocation decisions. This paper serves as a useful complement to recent studies using administrative data. Our experimental approach allows us to more cleanly test the role of past market performance by carefully controlling for many factors that may confound the analysis of administrative data.