Financial Advisors and Financial Advice
Sunday, Jan. 6, 2019 1:00 PM - 3:00 PM
- Chair: John Beshears, Harvard University
Learning from Coworkers: Peer Effects on Individual Investment Decisions
AbstractWe use unique data on employee decisions in the employee stock purchase plans
(ESPPs) of U.S. public firms to measure the influence of networks on investment
decisions. Comparing only employees within a firm during the same election
window and controlling for a metro area fixed effect, we find that the local
choices of coworkers to participate in the firm’s ESPP exert a significant
influence on employees’ own decisions to participate. Local coworkers’ trading
patterns also disseminate to colleagues through the network. In the cross-section,
we find that some employees (men, younger workers) are particularly susceptible
to peer influence. Generally, we find that more similar employees exert greater
influence on each other’s decisions and, particularly, that high (low) information
employees are most affected by other high (low) information employees.
However, we also find that the presence of high information employees magnifies
the effects of peer networks. We trace a value-increasing investment choice
through employee networks. Thus, our analysis suggests the potential of networks
and targeted investor education to improve financial decision-making.
Who Feels the Nudge? Financial Literacy, Self-Awareness and Retirement Savings Decisions
AbstractUsing a financial literacy survey of Swedish pension investors matched to actual retirement savings decisions, we argue that respondents can be broken into three groups: those who are financially literate, those who mistakenly believe they are financially literate, and those who know that they are not. We examine how these groups respond differently to informational nudges encouraging them to take charge of their own investments. Investors with mistaken beliefs responded to the nudge, and were more likely to work with mass-market advisors who steer them into high-fee funds. They underperform as a result. By comparison, those who either possess financial literacy or else understand that they do not possess financial literacy were less likely to respond to the nudge. They avoided advisors, stayed with the low-cost default fund, and therefore accumulated retirement savings more quickly.
University of Southern California
- G2 - Financial Institutions and Services