Default, Framing and Spillover Effects: The Case of Lifecycle Funds in 401(K) Plans

33 Pages Posted: 24 Jun 2009

See all articles by Olivia S. Mitchell

Olivia S. Mitchell

University of Pennsylvania - The Wharton School; National Bureau of Economic Research (NBER)

Gary R. Mottola

Research Director FINRA Foundation

Stephen P. Utkus

Vanguard Center for Investor Research

Takeshi Yamaguchi

University of Pennsylvania - The Wharton School

Multiple version iconThere are 2 versions of this paper

Date Written: June 24, 2009

Abstract

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 techniques drawn from behavioral economics may be employed.

Suggested Citation

Mitchell, Olivia S. and Mottola, Gary R. and Utkus, Stephen P. and Yamaguchi, Takeshi, Default, Framing and Spillover Effects: The Case of Lifecycle Funds in 401(K) Plans (June 24, 2009). Pension Research Council WP, May 2009. Available at SSRN: https://ssrn.com/abstract=1425066 or http://dx.doi.org/10.2139/ssrn.1425066

Olivia S. Mitchell (Contact Author)

University of Pennsylvania - The Wharton School ( email )

Philadelphia, PA 19104-6365
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Gary R. Mottola

Research Director FINRA Foundation ( email )

1735 K ST NW
Washington, DC 20006
United States

HOME PAGE: http://www.finrafoundation.org

Stephen P. Utkus

Vanguard Center for Investor Research ( email )

100 Vanguard Boulevard, M38
Malvern, PA 19355
United States
610-669-6308 (Phone)

Takeshi Yamaguchi

University of Pennsylvania - The Wharton School ( email )

3641 Locust Walk
Philadelphia, PA 19104-6365
United States

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