Mental Accounting in Portfolio Choice: Evidence from a Flypaper Effect

James J. Choi, David Laibson, Brigitte C. Madrian

NBER Working Paper No. 13656
Issued in November 2007, Revised in September 2009
NBER Program(s):Economics of Aging, Asset Pricing, Public Economics

Consistent with mental accounting, we document that investors sometimes choose the asset allocation for one account without considering the asset allocation of their other accounts. The setting is a firm that changed its 401(k) matching rules. Initially, 401(k) enrollees chose the allocation of their own contributions, but the firm chose the match allocation. These enrollees ignored the match allocation when choosing their own-contribution allocation. In the second regime, enrollees simultaneously selected both accounts' allocations, leading them to mentally integrate the two. Own-contribution allocations before the rule change equal the combined own- and match-contribution allocations afterwards, whereas combined allocations differ sharply across regimes.

Acknowledgments

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w13656

Published: James J. Choi & David Laibson & Brigitte C. Madrian, 2009. "Mental Accounting in Portfolio Choice: Evidence from a Flypaper Effect," American Economic Review, American Economic Association, vol. 99(5), pages 2085-95, December. citation courtesy of

Users who downloaded this paper also downloaded* these: