Measuring (In)Attention to Mutual Fund Fees: Evidence from Experiments

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We structurally estimate investors’ attention to mutual fund fees in an experimental setting with a sample matching the U.S. population. We find that investors, on average, react to fees as if they are 57.4% of the actual size, but the attention level varies substantially across subjects. This under-reaction translates into $57 billion fees inadvertently paid by investors in the U.S. mutual funds market. We also evaluate the efficacy of fee disclosure policies proposed by the U.S. SEC to increase investors’ attention. We find limited effectiveness; they are primarily effective for people with high financial literacy, high income, and urban residence.