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  3. American Economic Review
  4. December 2009
  5. Mental Accounting in Portfolio Choice: Evidence from a Flypaper Effect

Mental Accounting in Portfolio Choice: Evidence from a Flypaper Effect

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Abstract

Consistent with mental accounting, we document that investors sometimes choose the asset allocation for one account without considering the asset allocation of their other accounts. The setting is a firm that changed its 401(k) matching rules. Initially, 401(k) enrollees chose the allocation of their own contributions, but the firm chose the match allocation. These enrollees ignored the match allocation when choosing their own-contribution allocation. In the second regime, enrollees selected both accounts' allocations, leading them to integrate the two. Own-contribution allocations before the rule change equal the combined own- and match-contribution allocations afterward, whereas combined allocations differ sharply across regimes. (JEL G11, J32)

Citation

Choi, James J., David Laibson, and Brigitte C. Madrian. 2009. "Mental Accounting in Portfolio Choice: Evidence from a Flypaper Effect." American Economic Review, 99 (5): 2085-95. DOI: 10.1257/aer.99.5.2085

Additional Materials

JEL Classification

  • G11 Portfolio Choice; Investment Decisions
  • J32 Nonwage Labor Costs and Benefits; Private Pensions