Alphabeticity Bias in 401(k) Investing

Thomas W. Doellman, Jennifer Itzkowitz, Jesse Itzkowitz and Sabuhi H. Sardarli

The Financial Review, 2019, vol. 54, issue 4, 643-677

Abstract: Structural factors that cause irrational investment in defined contribution savings plans are of great concern. Using a proprietary database of 401(k) plans we show that alphabeticity—the order that fund names appear when listed in alphabetical order—significantly biases participants’ investment allocation decisions. While we show a larger impact as the number of funds in the plan increases, this bias is strong even when relatively few funds are available in the plan menu. Importantly, our findings suggest that a more strategic ordering of funds could result in favorable outcomes for participants.

Date: 2019
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