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Mental Accounting in Portfolio Choice: Evidence from a Flypaper Effect

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

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 accounts' 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 National Bureau of Economic Research, Inc in its series NBER Working Papers with number 13656.

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Date of creation: Nov 2007
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Publication status: published as James J. Choi & David Laibson & Brigitte C. Madrian, 2009. "Mental Accounting in Portfolio Choice: Evidence from a Flypaper Effect," American Economic Review, American Economic Association, vol. 99(5), pages 2085-95, December.
Handle: RePEc:nbr:nberwo:13656
Note: AG AP PE
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