Asset Allocation and Information Overload: The Influence of Information Display, Asset Choice and Investor Experience

44 Pages Posted: 13 Jun 2008

See all articles by Julie R. Agnew

Julie R. Agnew

College of William and Mary - Mason School of Business

Lisa Szykman

affiliation not provided to SSRN

Date Written: May 1, 2004

Abstract

This paper investigates three common differences among DC plans that may lead to varying degrees of information overload. We hypothesize that information overload is one reason DC participants often choose the default options. In two experiments, we manipulate the display of the investment information, the number of choices offered, and the similarity of these choices. In addition, we measure the financial knowledge of the participants. We test how these factors influence the participant's feelings of information overload, decision satisfaction and choice of the default. The main contribution of this analysis is that it explores the interaction between the individual's tested financial knowledge and the manipulated plan features. In our study, women with relatively lower salaries and less education tend to fall into our low knowledge category. Our findings do show that changes to plan design can help some individuals. We find individuals with above average financial knowledge do report significantly less overload when given fewer investment choices. This confirms previous research that plan design is important. Our results also show that financial knowledge plays a large role in who opts for the default. We find that low knowledge individuals opt for the default allocation more often than high knowledge individuals (experiment one: 20% vs. 2%). Our findings suggest individuals with below average knowledge are simply overwhelmed by the investment decision in general. Altering the plan by offering investment information in a more easily comparable format or by reducing the choices offered does not attenuate the low knowledge individuals' feelings of overload. The findings suggest that the success of certain plan features depends strongly on the financial background of the participant. The results emphasize the importance of plan design, especially the careful selection of plan default options, and the need to improve the financial literacy of participants.

Keywords: 401(k), investments, information overload, financial knowledge

Suggested Citation

Richardson Agnew, Julie and Szykman, Lisa, Asset Allocation and Information Overload: The Influence of Information Display, Asset Choice and Investor Experience (May 1, 2004). Available at SSRN: https://ssrn.com/abstract=1142932 or http://dx.doi.org/10.2139/ssrn.1142932

Julie Richardson Agnew (Contact Author)

College of William and Mary - Mason School of Business ( email )

P.O. Box 8795
Williamsburg, VA 23187-8795
United States

Lisa Szykman

affiliation not provided to SSRN ( email )

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