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

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

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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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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

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Find related papers by JEL classification:
G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
G2 - Financial Economics - - Financial Institutions and Services
G23 - Financial Economics - - Financial Institutions and Services - - - Pension Funds; Other Private Financial Institutions
H3 - Public Economics - - Fiscal Policies and Behavior of Economic Agents
H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
J14 - Labor and Demographic Economics - - Demographic Economics - - - Economics of the Elderly; Economics of the Handicapped
J26 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Retirement; Retirement Policies

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This page was last updated on 2009-11-25.

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