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Mental Accounting in Portfolio Choice: Evidence from a Flypaper Effect

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  • Laibson, David I.
  • Madrian, Brigitte C.
  • Choi, James J.

Abstract

Consistent with mental accounting, we document that investors sometimes choose the asset allocation for one account without considering the asset allocation of their other accounts. The setting is a firm that changed its 401(k) matching rules. Initially, 401(k) enrollees chose the allocation of their own contributions, but the firm chose the match allocation. These enrollees ignored the match allocation when choosing their own-contribution allocation. In the second regime, enrollees simultaneously selected both allocations, leading them to mentally integrate the two. Own-contribution allocations before the rule change equal the combined own and match-contribution allocations afterwards, whereas combined allocations differ sharply across regimes.

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Paper provided by Harvard University Department of Economics in its series Scholarly Articles with number 4686774.

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Date of creation: 2009
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Publication status: Published in American Economic Review
Handle: RePEc:hrv:faseco:4686774

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Citations

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Cited by:
  1. Baptista, Alexandre M., 2012. "Portfolio selection with mental accounts and background risk," Journal of Banking & Finance, Elsevier, Elsevier, vol. 36(4), pages 968-980.
  2. Monika Bütler & Stefan Staubli, 2010. "Payouts in Switzerland: Explaining Developments in Annuitization," University of St. Gallen Department of Economics working paper series 2010, Department of Economics, University of St. Gallen 2010-06, Department of Economics, University of St. Gallen.
  3. Laibson, David I. & Madrian, Brigitte & Beshears, John & Choi, James J., 2011. "Behavioral Economics Perspectives on Public Sector Pension Plans," Scholarly Articles 4723207, Harvard Kennedy School of Government.
  4. Fafchamps, Marcel & McKenzie, David & Quinn, Simon & Woodruff, Christopher, 2014. "Microenterprise growth and the flypaper effect: Evidence from a randomized experiment in Ghana," Journal of Development Economics, Elsevier, Elsevier, vol. 106(C), pages 211-226.
  5. John Beshears & James J. Choi & David Laibson & Brigitte C. Madrian, 2011. "Does Aggregated Returns Disclosure Increase Portfolio Risk-Taking?," NBER Working Papers 16868, National Bureau of Economic Research, Inc.
  6. Campbell, John Y. & Tufano, Peter & Madrian, Brigitte C. & Jackson, Howell Edmunds, 2011. "Consumer Financial Protection," Scholarly Articles 9887620, Harvard University Department of Economics.
  7. Alexander, Gordon J. & Baptista, Alexandre M., 2011. "Portfolio selection with mental accounts and delegation," Journal of Banking & Finance, Elsevier, Elsevier, vol. 35(10), pages 2637-2656, October.
  8. Stephanie Riegg Cellini & Fernando Ferreira & Jesse Rothstein, 2008. "The Value of School Facilities: Evidence from a Dynamic Regression Discontinuity Design," Working Papers, Princeton University, Department of Economics, Center for Economic Policy Studies. 1101, Princeton University, Department of Economics, Center for Economic Policy Studies..
  9. Holgar Müller & Eike Benjamin Kroll & Bodo Vogt, 2009. "Fact or Artifact Does the compromise effect occur when subjects face real consequences of their choices?," FEMM Working Papers 09009, Otto-von-Guericke University Magdeburg, Faculty of Economics and Management.
  10. Luc Christiaensen & Lei Pan, 2010. "Transfers and Development: Easy Come, Easy Go?," Working Paper Series, World Institute for Development Economic Research (UNU-WIDER) wp2010-125, World Institute for Development Economic Research (UNU-WIDER).
  11. Spiegel, Matthew & Zhang, Hong, 2013. "Mutual fund risk and market share-adjusted fund flows," Journal of Financial Economics, Elsevier, Elsevier, vol. 108(2), pages 506-528.

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