Default, Framing and Spillover Effects: the Case of Lifecycle Funds in 401(K) Plans
Olivia S. Mitchell
University of Pennsylvania - The Wharton School; National Bureau of Economic Research (NBER)
Gary R. Mottola
Stephen P. Utkus
The Vanguard Group, Inc. - Center for Retirement Research
University of Pennsylvania - The Wharton School
NBER Working Paper No. w15108
Important behavioral factors such as default and framing effects are increasingly being employed to optimize decision-making in a variety of settings, including individually-directed retirement plans. Yet such approaches may have unintended “spillover” effects, as we show with regard to the introduction of lifecycle funds in U.S. 401(k) plans. As anticipated, lifecycle funds do reshape individual portfolio choices through large default and framing effects. But unexpectedly, they also create a new class of investors which holds these funds as part of more complex portfolios. Our results are directly relevant to those interested in retirement plan design and retirement security; they also highlight the importance of assessing such spillover effects in other consequential settings where behavioral economics techniques may be employed.
Number of Pages in PDF File: 33
Date posted: June 30, 2009
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