Mental Accounting in Portfolio Choice: Evidence from a Flypaper Effect

32 Pages Posted: 30 Nov 2007 Last revised: 19 Sep 2009

See all articles by James J. Choi

James J. Choi

Yale School of Management; National Bureau of Economic Research (NBER)

David Laibson

Harvard University - Department of Economics; National Bureau of Economic Research (NBER)

Brigitte C. Madrian

Brigham Young University Marriott School of Business; National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: November 2007

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.

Suggested Citation

Choi, James J. and Laibson, David I. and Madrian, Brigitte C., Mental Accounting in Portfolio Choice: Evidence from a Flypaper Effect (November 2007). NBER Working Paper No. w13656. Available at SSRN: https://ssrn.com/abstract=1037175

James J. Choi (Contact Author)

Yale School of Management ( email )

135 Prospect Street
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National Bureau of Economic Research (NBER) ( email )

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David I. Laibson

Harvard University - Department of Economics ( email )

Littauer Center
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617-495-8570 (Fax)

National Bureau of Economic Research (NBER) ( email )

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Brigitte C. Madrian

Brigham Young University Marriott School of Business ( email )

Provo, UT 84602
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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