Abstract
Does the number of funds offered in a defined contribution plan affect how many funds consumers choose to invest in or how they spread dollars across the funds they choose? Across three experiments and the analysis of defined contribution plan data, the authors explore these issues by examining investors' tendency to engage in the 1/n heuristic— that is, allocating their dollars evenly across all available investment options. The authors decompose this heuristic into its two underlying behavioral dimensions: the tendency to invest in all available funds (which they label “1/n#”) and the tendency to spread the invested dollars evenly across chosen funds (which they label “1/n$”). The authors argue that choosing from larger fund assortments taxes investors' cognitive resources, which leads to more simplified diversification strategies. They find that increasing the fund assortment size decreases the tendency to invest in all available funds (1/n#) but increases the tendency to spread the invested dollars evenly among the chosen alternatives (1/n$), provided that the number of funds chosen for investment allows for easy equal dollar allocations. The authors integrate their results with prior research regarding asset choice and allocation heuristics.
Sign-in/Register to access full text options 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
