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How Much Is Investor Autonomy Worth?

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Author Info
Shlomo Benartzi (Anderson School at UCLA,)
Richard H. Thaler (University of Chicago)

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Abstract

There is a worldwide trend towards defined contribution savings plans, where investors are often able to select their own portfolios. How much is this freedom of choice worth? We present retirement investors with information about the distribution of outcomes they could expect to obtain from the portfolios they picked for themselves, and the same information for the median portfolio selected by their peers. A majority of our survey participants actually prefer the median portfolio to the one they picked for themselves. We investigate various explanations for these findings and offer some evidence that the results are partly attributable to the fact that investors do not have well-defined preferences. Copyright The American Finance Association 2002.

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Publisher Info
Article provided by American Finance Association in its journal The Journal of Finance.

Volume (Year): 57 (2002)
Issue (Month): 4 (08)
Pages: 1593-1616
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Handle: RePEc:bla:jfinan:v:57:y:2002:i:4:p:1593-1616

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  1. Zur Shapira & Itzhak Venezia, 2007. "On the Preference for Full-Coverage Policies: Why do People buy too much Insurance?," Levine's Bibliography 122247000000001505, UCLA Department of Economics. [Downloadable!]
  2. Maarten C.J. van Rooij & Clemens J.M. Kool & Henriette M. Prast, 2004. "Risk-return preferences in the pension domain: are people able to choose?," Working Papers 05-04, Utrecht School of Economics. [Downloadable!]
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  3. Dennis Dittrich & Werner Güth & Boris Maciejovsky, 2005. "Overconfidence in investment decisions: An experimental approach," European Journal of Finance, Taylor and Francis Journals, vol. 11(6), pages 471-491, December. [Downloadable!] (restricted)
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  4. Sumit Agarwal & John C. Driscoll & Xavier Gabaix & David Laibson, 2007. "The Age of Reason: Financial Decisions Over the Lifecycle," NBER Working Papers 13191, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  5. Gerlinde Fellner & Werner Güth & Boris Maciejovsky, 2001. "Illusion of Expertise in Portfolio Decisions - An Experimental Approach -," Discussion Papers on Strategic Interaction 2001-02, Max Planck Institute of Economics, Strategic Interaction Group. [Downloadable!]
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  6. James J. Choi & David Laibson & Brigitte C. Madrian & Andrew Metrick, 2002. "Defined Contribution Pensions: Plan Rules, Participant Decisions, and the Path of Least Resistance," JCPR Working Papers 257, Northwestern University/University of Chicago Joint Center for Poverty Research. [Downloadable!]
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  7. James Sundali & Federico Guerrero, 2006. "Managing a 401(k) Account: An Experiment on Asset Allocation," Working Papers 06-017, University of Nevada, Reno, Department of Economics & University of Nevada, Reno , Department of Resource Economics. [Downloadable!]
  8. Zur Shapira & Itzhak Venezia, 2007. "On the Preference for Full-Coverage Policies: Why do People buy too much Insurance?," Discussion Paper Series dp460, Center for Rationality and Interactive Decision Theory, Hebrew University, Jerusalem. [Downloadable!]
  9. Henrik Cronqvist & Richard H. Thaler, 2004. "Design Choices in Privatized Social-Security Systems: Learning from the Swedish Experience," American Economic Review, American Economic Association, vol. 94(2), pages 424-428, May. [Downloadable!] (restricted)
  10. Richard H. Thaler & Cass R. Sunstein, 2003. "Libertarian Paternalism," American Economic Review, American Economic Association, vol. 93(2), pages 175-179, May. [Downloadable!] (restricted)
  11. James J. Choi & David Laibson & Brigitte C. Madrian & Andrew Metrick, 2004. "Saving or Retirement on the Path of Least Resistance," Levine's Bibliography 122247000000000606, UCLA Department of Economics. [Downloadable!]
  12. James J. Choi & David Laibson & Brigitte C. Madrian, 2004. "Plan Design and 401(k) Savings Outcomes," NBER Working Papers 10486, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  13. Allard Bruinshoofd & Sybille Grob, 2006. "Do changes in pension incentives affect retirement? A stated preferences approach to Dutch retirement consideration," DNB Working Papers 115, Netherlands Central Bank, Research Department. [Downloadable!]
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