Investing for Retirement: The Moderating Effect of Fund Assortment Size on the 1/N Heuristic

Journal of Marketing Research Vol. XLIX (August 2012), 537–550

14 Pages Posted: 3 Sep 2014

See all articles by Maureen Morrin

Maureen Morrin

Temple University - Fox School of Business and Management; Temple University - Department of Marketing and Supply Chain Management

Jeffrey Inman

University of Pittsburgh - Katz Graduate School of Business

Susan M. Broniarczyk

University of Texas at Austin - Marketing

Gergana Y. Nenkov

Boston College - Carroll School of Management

Jonathan Reuter

Boston College - Department of Finance; National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: August 2012

Abstract

Does the number of funds offered in a defined contribution plan affect how many funds consumers choose to invest in or how they spread dollars across the funds they choose? Across three experiments and the analysis of defined contribution plan data, the authors explore these issues by examining investors’ tendency to engage in the 1/n heuristic — that is, allocating their dollars evenly across all available investment options. The authors decompose this heuristic into its two underlying behavioral dimensions: the tendency to invest in all available funds (which they label "1/n#") and the tendency to spread the invested dollars evenly across chosen funds (which they label "1/n$"). The authors argue that choosing from larger fund assortments taxes investors’ cognitive resources, which leads to more simplified diversification strategies. They find that increasing the fund assortment size decreases the tendency to invest in all available funds (1/n#) but increases the tendency to spread the invested dollars evenly among the chosen alternatives (1/n$), provided that the number of funds chosen for investment allows for easy equal dollar allocations. The authors integrate their results with prior research regarding asset choice and allocation heuristics.

Keywords: retirement, investment decisions, 401(k), asset allocation, 1/n heuristic, diversification

Suggested Citation

Morrin, Maureen and Inman, Jeffrey and Broniarczyk, Susan M. and Nenkov, Gergana Y. and Reuter, Jonathan, Investing for Retirement: The Moderating Effect of Fund Assortment Size on the 1/N Heuristic (August 2012). Journal of Marketing Research Vol. XLIX (August 2012), 537–550, Available at SSRN: https://ssrn.com/abstract=2490465

Maureen Morrin (Contact Author)

Temple University - Fox School of Business and Management ( email )

Philadelphia, PA 19122
United States

Temple University - Department of Marketing and Supply Chain Management ( email )

Philadelphia, PA 19122
United States

Jeffrey Inman

University of Pittsburgh - Katz Graduate School of Business ( email )

Pittsburgh, PA 15260
United States

Susan M. Broniarczyk

University of Texas at Austin - Marketing ( email )

2110 Speedway Stop B6700
McCombs School of Business
Austin, TX 78712-1275
United States

Gergana Y. Nenkov

Boston College - Carroll School of Management ( email )

140 Commonwealth Avenue
Chestnut Hill, MA 02467
United States

Jonathan Reuter

Boston College - Department of Finance ( email )

Carroll School of Management
140 Commonwealth Avenue
Chestnut Hill, MA 02467-3808
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
21
Abstract Views
683
PlumX Metrics