Lisa R. Szykman

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.

Trust, plan knowledge and 401(k) savings behavior

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.

Can Health Care Organizations Better Contribute to Quality of Life by Focusing on Preventive Health Knowledge

In recent years, there has been an increasing number of programs developed by health care providers and public domain entities to enlighten consumers about the benefits of learning more about healthy behaviors. In this study, the authors share a model developed and tested to explore the relationships among an individuals health knowledge, health, and overall quality of life (QOL) assessment. Data were collected as part of a large mail survey. Results support the relationships hypothesized and provide preliminary support for the notion of improving QOL by creating “expert” patients. These results have implications for public policy and future research.

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

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.