Individual Differences in 401(k) Plan Allocation Choices

Abstract

Insufficient retirement savings behavior practiced by a significant number of employees underscores the importance of understanding the characteristics of those individuals most likely to choose the default contribution and asset allocation vehicles of an organization. We conducted an experiment of savings behavior involving 217 subjects asked to make choices about allocating 401(k) funds and investing those funds in investment vehicles. Individuals who specified their own allocation amounts invested significantly more money versus those who accepted a default. Psychological and demographic factors also predicted higher investment dollars and higher-risk investment choices. Changes in ambiguity tolerance significantly affected men’s decisions to choose high-risk investments for their 401(k) dollars, but these psychological variables did not affect women’s high-risk investment decisions. We offer implications for future research and practice.