Investing for Retirement: The Moderating Effect of Fund Assortment Size on the 1/N Heuristic

Journal of Marketing Research, Forthcoming

Fox School of Business Research Paper No. 14-009

39 Pages Posted: 12 Mar 2009 Last revised: 28 May 2014

See all articles by Maureen Morrin

Maureen Morrin

Temple University - Fox School of Business and Management; Temple University - Department of Marketing and Supply Chain Management

Jeffrey Inman

University of Pittsburgh - Katz Graduate School of Business

Susan M. Broniarczyk

University of Texas at Austin - Marketing

Gergana Y. Nenkov

Boston College - Carroll School of Management

Jonathan Reuter

Boston College - Department of Finance; National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: January 16, 2012

Abstract

Does the number of funds offered in your defined contribution plan affect how many funds you choose to invest in or how you spread dollars across the funds you choose? Across three experiments and the analysis of defined contribution plan data, we explore these issues by examining investors’ tendency to engage in the 1/n heuristic – allocating their dollars evenly across all available investment options (Benartzi and Thaler 2001). We decompose this heuristic into its two underlying behavioral dimensions: the tendency to invest in all available funds (which we label 1/n#) and the tendency to spread the invested dollars evenly across chosen funds (which we label 1/n$). We argue that choosing from larger fund assortments taxes investors’ cognitive resources, which leads to more simplified diversification strategies. We find that increasing the fund assortment size decreases the tendency to invest in all available funds (1/n#), but increases the tendency to spread the invested dollars evenly among the chosen alternatives (1/n$) – provided that the number of funds chosen for investment allows for easy equal dollar allocations. We integrate our results with prior research regarding asset choice and allocation heuristics.

Keywords: behavioral finance, retirement, investment decisions, 401k, asset allocation, 1/n heuristic, diversification

JEL Classification: D12, H31, M30

Suggested Citation

Morrin, Maureen and Inman, Jeffrey and Broniarczyk, Susan M. and Nenkov, Gergana Y. and Reuter, Jonathan, Investing for Retirement: The Moderating Effect of Fund Assortment Size on the 1/N Heuristic (January 16, 2012). Journal of Marketing Research, Forthcoming; Fox School of Business Research Paper No. 14-009. Available at SSRN: https://ssrn.com/abstract=1008841 or http://dx.doi.org/10.2139/ssrn.1008841

Maureen Morrin

Temple University - Fox School of Business and Management ( email )

Philadelphia, PA 19122
United States

Temple University - Department of Marketing and Supply Chain Management ( email )

Philadelphia, PA 19122
United States

Jeffrey Inman (Contact Author)

University of Pittsburgh - Katz Graduate School of Business ( email )

Pittsburgh, PA 15260
United States

Susan M. Broniarczyk

University of Texas at Austin - Marketing ( email )

2110 Speedway Stop B6700
McCombs School of Business
Austin, TX 78712-1275
United States

Gergana Y. Nenkov

Boston College - Carroll School of Management ( email )

140 Commonwealth Avenue
Chestnut Hill, MA 02467
United States

Jonathan Reuter

Boston College - Department of Finance ( email )

Carroll School of Management
140 Commonwealth Avenue
Chestnut Hill, MA 02467-3808
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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