Keywords

mental accounting, asset allocation, 401(k) matching

Abstract

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.

Original Publication Citation

“Mental Accounting in Portfolio Choice: Evidence from a Flypaper Effect.” 2009. American Economic Review, 99(5):2085-95 (with James J.Choi and David Laibson). https://doi:10.1257/aer.99.5.2085

Document Type

Peer-Reviewed Article

Publication Date

2009

Publisher

American Economic Review

Language

English

College

Marriott School of Business

Department

Finance

University Standing at Time of Publication

Full Professor

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