As Easy as Pie: How Retirement Savers Use Prescribed Investment Disclosures

40 Pages Posted: 5 Mar 2013

See all articles by Hazel Bateman

Hazel Bateman

UNSW Sydney, CEPAR

Loretti Dobrescu

University of New South Wales, School of Economics

Ben Newell

University of New South Wales (UNSW)

Andreas Ortmann

UNSW Australia Business School, School of Economics

Susan Thorp

University of Sydney Business School; Financial Research Network (FIRN); Centre for International Finance and Regulation (CIFR)

Date Written: March 3, 2013

Abstract

We report the results of two laboratory experiments that study how university student and staff participants chose retirement savings investment options using ‘user-friendly’ information prescribed by regulators. We demonstrate that choices of more than 20% of participants cannot be predicted using any of the prescribed information items but that 30% of participants used all, or almost all, items, frequently in unexpected ways. A pie-chart showing asset allocation had the largest marginal impact on investment choices. Participants preferred options with more segmented pies (lower concentration) and with equally sized segments (lower deviation from a 1/n allocation). This choice behavior is consistent with the application of a simple diversification heuristic. Participants cannot choose more than one investment but are guided by the extent to which a pre-mixed investment option appears evenly balanced across asset classes. This novel application of a 1/n strategy is distinct from existing findings of naïve diversification in ‘mix-it-yourself’ conditions where participants spread resources evenly across funds or categories. The results highlight that information contained in prescribed investment disclosures may not be used in the manner intended by the regulator. The results also pose interesting methodological questions about the way ‘user-friendly’ information prescribed by regulators is validated before being legislated.

Keywords: consumer finance, diversification heuristics, pensions, choice experiment

JEL Classification: G02, G11, D14, C91

Suggested Citation

Bateman, Hazel and Dobrescu, Loretti Isabella and Newell, Ben and Ortmann, Andreas and Thorp, Susan, As Easy as Pie: How Retirement Savers Use Prescribed Investment Disclosures (March 3, 2013). UNSW Australian School of Business Research Paper No. 2013ECON02. Available at SSRN: https://ssrn.com/abstract=2227801 or http://dx.doi.org/10.2139/ssrn.2227801

Hazel Bateman (Contact Author)

UNSW Sydney, CEPAR ( email )

High Street
Sydney, NSW 2052
Australia

Loretti Isabella Dobrescu

University of New South Wales, School of Economics ( email )

High Street
Sydney, NSW 2052
Australia

Ben Newell

University of New South Wales (UNSW) ( email )

Kensington
High St
Sydney, NSW 2052
Australia

Andreas Ortmann

UNSW Australia Business School, School of Economics ( email )

High Street
Sydney, NSW 2052
Australia

Susan Thorp

University of Sydney Business School ( email )

P.O. Box H58
Sydney, NSW 2006
Australia
+61 2 9351 6354 (Phone)

Financial Research Network (FIRN)

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

HOME PAGE: http://www.firn.org.au

Centre for International Finance and Regulation (CIFR) ( email )

Level 7, UNSW CBD Campus
1 O'Connell Street
Sydney, NSW 2000
Australia

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