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Dominated Pension Investments: The Role of Search Frictions and Unawareness

Author

Listed:
  • Karin Kinnerud
  • Louise Lorentzon

Abstract

We conduct a large-scale field experiment in the Swedish pension system to examine to what extent information and search frictions explain dominated high-fee index fund choices. Three findings standout: (i) Letters that increase awareness of a dominated choice and reduce search costs of finding the dominating alternative improve savers' investment choices. (ii) While the average effects are positive, a majority of investors are unresponsive to information that essentially removes search costs. The inertia holds across expected gains, rejecting models with fixed adjustment costs. (iii) Lack of awareness and search costs account for at most 45 percent of dominated choices.

Suggested Citation

  • Karin Kinnerud & Louise Lorentzon, 2026. "Dominated Pension Investments: The Role of Search Frictions and Unawareness," American Economic Journal: Applied Economics, American Economic Association, vol. 18(3), pages 115-144, July.
    • Handle: RePEc:aea:aejapp:v:18:y:2026:i:3:p:115-44
    DOI: 10.1257/app.20240153
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    More about this item

    JEL classification:

    • C93 - Mathematical and Quantitative Methods - - Design of Experiments - - - Field Experiments
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G51 - Financial Economics - - Household Finance - - - Household Savings, Borrowing, Debt, and Wealth
    • G53 - Financial Economics - - Household Finance - - - Financial Literacy
    • J32 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Nonwage Labor Costs and Benefits; Retirement Plans; Private Pensions

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