$100 Bills on the Sidewalk: Suboptimal Investment in 401(K) Plans

James Choi, David Laibson and Brigitte Madrian

Yale School of Management Working Papers from Yale School of Management

Abstract: It is typically difficult to determine whether households invest optimally. But sometimes, investment incentives are strong enough to create sharp normative restrictions. We identify employees at seven companies who are eligible to receive employer matching contributions in their 401(k) and can make penalty-free withdrawals for any reason. For these employees, contributing less than the match threshold is a dominated action that violates the no-arbitrage condition. Nevertheless, between 20% and 60% contribute below the threshold, losing as much as 6% of their annual pay. Providing employees with information about the free lunch they are foregoing fails to raise contribution rates.

Keywords: suboptimal investment; 401(k) plans; household investment; arbitrage Working Paper Series (search for similar items in EconPapers)
Date: 2008-01-01, Revised 2009-07-01
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://repec.som.yale.edu/icfpub/publications/2519.pdf (application/pdf)

Related works:
Journal Article: $100 Bills on the Sidewalk: Suboptimal Investment in 401(k) Plans (2011)
Working Paper: $100 Bills on the Sidewalk: Suboptimal Investment in 401(k) Plans (2005)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ysm:wpaper:amz2519

Access Statistics for this paper

More papers in Yale School of Management Working Papers from Yale School of Management Contact information at EDIRC.
Bibliographic data for series maintained by ().