Working Paper: NBER ID: w15108
Authors: Olivia S. Mitchell; Gary R. Mottola; Stephen P. Utkus; Takeshi Yamaguchi
Abstract: Important behavioral factors such as default and framing effects are increasingly being employed to optimize decision-making in a variety of settings, including individually-directed retirement plans. Yet such approaches may have unintended "spillover" effects, as we show with regard to the introduction of lifecycle funds in U.S. 401(k) plans. As anticipated, lifecycle funds do reshape individual portfolio choices through large default and framing effects. But unexpectedly, they also create a new class of investors which holds these funds as part of more complex portfolios. Our results are directly relevant to those interested in retirement plan design and retirement security; they also highlight the importance of assessing such spillover effects in other consequential settings where behavioral economics techniques may be employed.
Keywords: default effects; framing effects; lifecycle funds; 401k plans; retirement savings
JEL Codes: G11; G23; H3; H55; J14; J26
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Introduction of lifecycle funds (G23) | New class of mixed investors (G19) |
| Introduction of lifecycle funds (G23) | Changes in equity exposure and risk characteristics (G11) |
| Framing effect (D91) | Increased adoption of lifecycle funds (G23) |
| Default designation of lifecycle funds (G23) | Increased likelihood of participant adoption (C92) |
| Default designation of lifecycle funds (G23) | Increased likelihood of adoption for new hires (M51) |