Article2006

HOW MORE CHOICES ARE DEMOTIVATING: IMPACT OF MORE OPTIONS ON 401(K) INVESTMENT *

11 citations0/0 files stored

No readable copy stored yet — this record is metadata only.

No open-access location is known for this record yet.

Literature note Cite in a project Citation map

Decision-Making and Behavioral Economics Financial Markets and Investment Strategies Financial Literacy, Pension, Retirement Analysis

Abstract

Prior psychological studies documented the choice overload phenomenon (i.e., more choice leads to decreased probability that individuals choose to choose) in experiments using small consumer products. This paper examines whether such phenomenon exists in a non-experimental setting of defined-contribution retirement savings. Using records of 401(k) participation and contribution allocation for nearly 800,000 eligible employees from Vanguard, we find that for every ten funds added to the choice menu, (i) the average employee’s participation probability is lowered by about 2%; (ii) the contribution allocation to safe funds (money market and bond funds) is 5.4 percentage points higher; (iii) the contribution allocation to stock funds is 7-9 percentage points lower. Such evidence supports predictions of the choice overload hypothesis that more choices can de-motivate choosing and that under such conditions individuals may resort to simplifying decision-making heuristics.

Paper brief

Loading…

Cite this work

Citation unavailable for this work.

BibTeX RIS CSL-JSON

No public copy is stored for this record, so only the metadata is cited.

Citations in this library

Citation map →

Stored only when both papers are in the corpus — 11 citations exist upstream.

References

1994The magical number seven, plus or minus two: Some limits on our capacity for processing information.1955A BEHAVIORAL MODEL OF RATIONAL CHOICE 1988Status quo bias in decision making 1999Mental accounting matters 2001The Power of Suggestion: Inertia in 401(k) Participation and Savings Behavior 2004Save More Tomorrow™: Using Behavioral Economics to Increase Employee Saving 2000When choice is demotivating: Can one desire too much of a good thing?1995The construction of preference.

Cited by

2007Heuristics and Biases in Retirement Savings Behavior 2011Retirement Saving Choices: Review of the Literature and Policy Implications 2007Overcoming Inertia: Do Automated Saving and Investing Strategies Work?2007The Behavioral Economics of Retirement Savings Behavior 2004The 1/N Heuristic in 401(K) Plans 2006The psychology of diversification: Novice investors' ability to spread risks

Explore the map →

Papers that cite the same references — the relational fallback while embeddings are still backfilling.

Imported from OpenAlex (CC0) — nothing here is generated.