The 1/N Heuristic in 401(K) Plans

46 Pages Posted: 11 Jun 2004

See all articles by Gur Huberman

Gur Huberman

Columbia Business School - Finance and Economics

Wei Jiang

Columbia Business School - Finance and Economics; ECGI; NBER

Date Written: March 15, 2004

Abstract

Records of more than half a million participants in more than six hundred 401(k) pension plans indicate that participants tend to use a small number of funds: The number of participants using a given number of funds peaks at three funds and declines with the number of funds for more than three funds. Participants tend to allocate their contributions evenly across the funds they use, with the tendency weakening with the number of funds used. The median number of funds used is between three and four, and is not sensitive to the number of funds offered by the plans, which ranges from 4 to 59. A participant's propensity to allocate contributions to equity funds is hardly sensitive to the fraction of equity funds among those offered by his plan. The paper also comments on limitations on inference available from experiments and from aggregate-level data analysis.

Suggested Citation

Huberman, Gur and Jiang, Wei, The 1/N Heuristic in 401(K) Plans (March 15, 2004). EFA 2004 Maastricht Meetings Paper No. 2036, Available at SSRN: https://ssrn.com/abstract=556117 or http://dx.doi.org/10.2139/ssrn.556117

Gur Huberman

Columbia Business School - Finance and Economics ( email )

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Wei Jiang (Contact Author)

Columbia Business School - Finance and Economics ( email )

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