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Do Behavioral Biases Vary across Individuals? Evidence from Individual Level 401(k) Data

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  • Agnew, Julie R.

Abstract

This paper investigates whether some individuals are prone to behavioral biases in their 401(k) investments. Using demographic data and allocation information for over 73,000 employees, I examine two allocation biases and a participation bias. The findings suggest that higher salaried employees tend to make significantly better choices. Participants who earn $100, 000 hold 12. 7% less in company stock, are 3% less likely to follow the framing 1/ n heuristic, and are 37.7% more likely to participate than those earning $46, 000. Women make better choices in two of the three cases and I find evidence of mental accounting.

Suggested Citation

  • Agnew, Julie R., 2006. "Do Behavioral Biases Vary across Individuals? Evidence from Individual Level 401(k) Data," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 41(04), pages 939-962, December.
  • Handle: RePEc:cup:jfinqa:v:41:y:2006:i:04:p:939-962_00
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    Cited by:

    1. Kaustia, Markku & Lehtoranta, Antti & Puttonen, Vesa, 2013. "Does sophistication affect long-term return expectations? Evidence from financial advisers' exam scores," SAFE Working Paper Series 3, Research Center SAFE - Sustainable Architecture for Finance in Europe, Goethe University Frankfurt.
    2. Jeffrey R. Brown & Nellie Liang & Scott Weisbenner, 2007. "Individual Account Investment Options and Portfolio Choice: Behavioral Lessons from 401(k) Plans," NBER Chapters,in: Public Policy and Retirement, Trans-Atlantic Public Economics Seminar (TAPES), pages 1992-2013 National Bureau of Economic Research, Inc.
    3. Gerrans, Paul & Yap, Ghialy, 2014. "Retirement savings investment choices: Sophisticated or naive?," Pacific-Basin Finance Journal, Elsevier, vol. 30(C), pages 233-250.
    4. Rzeszutek Marcin, 2015. "Personality Traits and Susceptibility to Behavioral Biases among a Sample of Polish Stock Market Investors," International Journal of Management and Economics, Warsaw School of Economics, Collegium of World Economy, vol. 47(1), pages 71-81, September.
    5. repec:bla:jrinsu:v:83:y:2016:i:4:p:979-1006 is not listed on IDEAS
    6. Sokolovskyi, Dmytro, 2018. "Analysis of dependencies between state tax behavior and macroeconomic indicators," MPRA Paper 86417, University Library of Munich, Germany.
    7. repec:eee:pacfin:v:47:y:2018:i:c:p:150-165 is not listed on IDEAS
    8. Cronqvist, Henrik & Siegel, Stephan, 2014. "The genetics of investment biases," Journal of Financial Economics, Elsevier, vol. 113(2), pages 215-234.
    9. repec:bla:acctfi:v:57:y:2017:i:3:p:759-788 is not listed on IDEAS
    10. repec:spr:joecth:v:65:y:2018:i:2:d:10.1007_s00199-016-1022-z is not listed on IDEAS
    11. Carsten Krabbe Nielsen, 2009. "Rational Overconfidence and Social Security," Discussion Paper Series 0916, Institute of Economic Research, Korea University.
    12. Magron, Camille & Merli, Maxime, 2015. "Repurchase behavior of individual investors, sophistication and regret," Journal of Banking & Finance, Elsevier, vol. 61(C), pages 15-26.
    13. Julie Agnew & Lisa Szykman, 2010. "Information Overload and Information Presentation in Financial Decision Making," Chapters,in: Handbook of Behavioral Finance, chapter 2 Edward Elgar Publishing.
    14. Alan Schwartz, 2008. "How Much Irrationality Does the Market Permit?," The Journal of Legal Studies, University of Chicago Press, vol. 37(1), pages 131-159, January.

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