Alphabeticity Bias in 401(K) Investing

35 Pages Posted: 20 May 2020

See all articles by Thomas W. Doellman

Thomas W. 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

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Date Written: November 2019

Abstract

Structural factors that 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: alphabeticity, 401(k) plans, portfolio selection

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

Suggested Citation

Doellman, Thomas W. and Itzkowitz, Jennifer and Itzkowitz, Jesse and Sardarli, Sabuhi, Alphabeticity Bias in 401(K) Investing (November 2019). Financial Review, Vol. 54, Issue 4, pp. 643-677, 2019, Available at SSRN: https://ssrn.com/abstract=3601141 or http://dx.doi.org/10.1111/fire.12188

Thomas W. Doellman

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

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

Jennifer Itzkowitz

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 (Contact Author)

Kansas State University - Department of Finance ( email )

Manhattan, KS 66506
United States

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