How Do Mutual Fund Fees Affect Investor Choices? Evidence from Survey Experiments
AbstractOver the past few decades, risks associated with providing for financial security in retirement have increasingly shifted from employers to employees as employer-provided pensions have shifted from defined-benefit to defined-contribution (DC) plans. Recent work in behavioral finance suggests that investors do not make optimal investment decisions in their DC plans. The authors designed and administered a pair of mutual fund choice experiments to over 1000 survey respondents who participate in the RAND American Life Panel. Their analysis sheds light on the question of how mutual fund investors respond to variation in fees in a hypothetical scenario in which fees should be obvious to the investor. The results show that some aspects of individual behavior are consistent with rational wealth-maximization and the majority of the respondents are able to provide estimates of fees that lie within a benchmark range. However, they find that respondents tend not to minimize expected fees and are more averse to backend load fees than to front-end loads. The trade-off between expense ratios and loads is found to be somewhat sensitive to the expected holding period in a manner consistent with expected-wealth maximization, but investors may tend to be too averse to loads. Differences in measured financial literacy predict differences in behavior, with lower rates of literacy among women accounting for differences in choice behavior by gender. They also find that financial literacy mediates individual responses to the presentation of information intended to enhance decision making.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by RAND Corporation Publications Department in its series Working Papers with number 653.
Length: 38 pages
Date of creation: Dec 2008
Date of revision:
Contact details of provider:
Postal: 1776 Main Street, P.O. Box 2138, Santa Monica, California 90407-2138
Web page: http://www.rand.org/pubs/
More information through EDIRC
Find related papers by JEL classification:
- D14 - Microeconomics - - Household Behavior - - - Personal Finance
- D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search, Learning, and Information
- D91 - Microeconomics - - Intertemporal Choice and Growth - - - Intertemporal Consumer Choice; Life Cycle Models and Saving
This paper has been announced in the following NEP Reports:
You can help add them by filling out this form.
reading list or among the top items on IDEAS.Access and download statisticsgeneral information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Benson Wong).
If references are entirely missing, you can add them using this form.