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Default, Framing and Spillover Effects: The Case of Lifecycle Funds in 401(k) Plans

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  • Olivia S. Mitchell
  • Gary R. Mottola
  • Stephen P. Utkus
  • Takeshi Yamaguchi

Abstract

Important behavioral factors such as default and framing effects are increasingly being employed to optimize decision-making in a variety of settings, including individually-directed retirement plans. Yet such approaches may have unintended “spillover” effects, as we show with regard to the introduction of lifecycle funds in U.S. 401(k) plans. As anticipated, lifecycle funds do reshape individual portfolio choices through large default and framing effects. But unexpectedly, they also create a new class of investors which holds these funds as part of more complex portfolios. Our results are directly relevant to those interested in retirement plan design and retirement security; they also highlight the importance of assessing such spillover effects in other consequential settings where behavioral economics techniques may be employed.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 15108.

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Date of creation: Jun 2009
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Handle: RePEc:nbr:nberwo:15108

Note: AG LS PE
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Cited by:
  1. Kim, Hugh H. & Maurer, Raimond & Mitchell, Olivia S., 2013. "Time is money: Life cycle rational inertia and delegation of investment management," CFS Working Paper Series 2013/08, Center for Financial Studies (CFS).

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