Asset Allocation and Information Overload: The Influence of Information Display, Asset Choice, and Investor Experience

For many individuals, their financial security during retirement depends on the financial decisions they make in their defined contribution (DC) plans today. Yet despite the importance of these investment decisions, growing research shows that individuals tend to make choices based on the “path of least resistance” (Choi, Laibson, Madrian and Metrick, 2002). The downside of this behavior is that it often results in individuals investing according to their plans’ default options. One issue is that these default options are generally not tailored to the individual. In addition, these options are typically conservative which can lead to inadequate savings. Thus, understanding what is driving this behavior and how plan design can or cannot alleviate this problem is an issue of critical importance.