Alphabeticity Bias in 401(k) Investing

The Financial Review, Forthcoming

58 Pages Posted: 21 Dec 2018

See all articles by Thomas Doellman

Thomas Doellman

Saint Louis University - Richard A. Chaifetz School of Business

Jennifer Itzkowitz

Seton Hall University - Department of Finance & Legal Studies

Jesse Itzkowitz

Ipsos Behavioral Science Center

Sabuhi Sardarli

Kansas State University - Department of Finance

Date Written: December 4, 2018

Abstract

Structural factors which cause irrational investment in defined contribution savings plans are of great concern. Using a proprietary database of 401(k) plans we show that alphabeticity – the order that fund names appear when listed in alphabetical order – significantly biases participants’ investment allocation decisions. While we show a larger impact as the number of funds in the plan increases, this bias is strong even when relatively few funds are available in the plan menu. Importantly, our findings suggest that a more strategic ordering of funds could result in favorable outcomes for participants.

Keywords: 401(k) Investing, Behavioral Finance, Alphabeticity, Bias, Decision Making

JEL Classification: G10, G11, G20, G21, G23

Suggested Citation

Doellman, Thomas and Itzkowitz, Jennifer and Itzkowitz, Jesse and Sardarli, Sabuhi, Alphabeticity Bias in 401(k) Investing (December 4, 2018). The Financial Review, Forthcoming. Available at SSRN: https://ssrn.com/abstract=3295400 or http://dx.doi.org/10.2139/ssrn.3295400

Thomas Doellman

Saint Louis University - Richard A. Chaifetz School of Business ( email )

3674 Lindell Blvd
St. Louis, MO 63108-3397
United States

Jennifer Itzkowitz (Contact Author)

Seton Hall University - Department of Finance & Legal Studies ( email )

400 South Orange Avenue
South Orange, NJ 07079
United States

Jesse Itzkowitz

Ipsos Behavioral Science Center ( email )

360 Park Avenue South
Floor 17
New York, NY 10010
United States

Sabuhi Sardarli

Kansas State University - Department of Finance ( email )

Manhattan, KS 66506
United States

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