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Mental Accounting in Portfolio Choice: Evidence from a Flypaper Effect

  • Laibson, David I.
  • Madrian, Brigitte C.
  • Choi, James J.

Consistent with mental accounting, we document that investors sometimes choose the asset allocation for one account without considering the asset allocation of their other accounts. The setting is a firm that changed its 401(k) matching rules. Initially, 401(k) enrollees chose the allocation of their own contributions, but the firm chose the match allocation. These enrollees ignored the match allocation when choosing their own-contribution allocation. In the second regime, enrollees simultaneously selected both allocations, leading them to mentally integrate the two. Own-contribution allocations before the rule change equal the combined own and match-contribution allocations afterwards, whereas combined allocations differ sharply across regimes.

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Paper provided by Harvard University Department of Economics in its series Scholarly Articles with number 4686774.

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Date of creation: 2009
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Publication status: Published in American Economic Review
Handle: RePEc:hrv:faseco:4686774
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