Sophistication in Retirement Savings Investment Choices

36 Pages Posted: 8 Jul 2010 Last revised: 27 Feb 2013

See all articles by Paul Gerrans

Paul Gerrans

The University of Western Australia - UWA Business School

Ghialy Yap

Edith Cowan University; Financial Research Network (FIRN)

Date Written: Feb 26, 2013


This paper assesses the level of sophistication evident in investment choices of a large sample of individuals drawn from three Australian retirement savings funds. Available US and UK evidence is somewhat mixed on both the measures that should be used when measuring the sophistication as well as its prevalence. This paper investigates naive diversification heuristics using Australian member level investment choice data over a six year period, 2001 to 2006. Results suggest a strong preference for using a small number of options in investment choices. There is little evidence to support the 'pure' 1/n heuristic (Benartzi and Thaler, 2001). However when multiple options are selected, one-third are classified as conditional 1/n (Huberman and Jiang, 2006). The proportion of choices classified as conditional 1/n is strongly related to the number of options used in the choice. The possible consequence of menu framing on asset class allocation is investigated and does not support an influence of menu on effective allocations, at least in terms of equity exposure.

Keywords: investment choice, retirement savings, pensions, superannuation

JEL Classification: G23, D91

Suggested Citation

Gerrans, Paul and Yap, Ghialy C. L., Sophistication in Retirement Savings Investment Choices (Feb 26, 2013). Australian Centre for Financial Studies - Finsia Banking and Finance Conference 2010. Available at SSRN: or

Paul Gerrans (Contact Author)

The University of Western Australia - UWA Business School ( email )

Crawley, Western Australia 6009
61 8 64882910 (Phone)

Ghialy C. L. Yap

Edith Cowan University ( email )

Joondalup Campus
Joondalup 6027 WA

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane


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