Mental Accounting in Portfolio Choice: Evidence from a Flypaper Effect

James Jinwoo Choi, David Laibson () and Brigitte C. Madrian

No 13656, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: 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.

JEL-codes: D01 D14 G11 G23 J26 (search for similar items in EconPapers)
Date: Written
Note: AG AP PE
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