Skip to main content Accessibility help

Do Behavioral Biases Vary across Individuals? Evidence from Individual Level 401(k) Data

  • Julie R. Agnew (a1)


This paper investigates whether some individuals are prone to behavioral biases in their 401(k) investments. Using demographic data and allocation information for over 73,000 employees, I examine two allocation biases and a participation bias. The findings suggest that higher salaried employees tend to make significantly better choices. Participants who earn $100, 000 hold 12. 7% less in company stock, are 3% less likely to follow the framing 1/n heuristic, and are 37.7% more likely to participate than those earning $46, 000. Women make better choices in two of the three cases and I find evidence of mental accounting.



Hide All
Agnew, J.; Balduzzi, P.; and Sunden, A.. “Portfolio Choice and Trading in a Large 401(k) Plan.” American Economic Review, 93 (2003), 193215.
Barber, B. M., and Odean, T.. “Boys Will Be Boys: Gender, Overconfidence, and Common Stock Investment.” Quarterly Journal of Economics, 116 (2001), 261292.
Benartzi, S.Excessive Extrapolation and the Allocation of 401(k) Accounts to Company Stock.” Journal of Finance, 56 (2001), 17471764.
Benartzi, S., and Thaler, R.. “Naive Diversification Strategies in Retirement Saving Plans.” American Economic Review, 91 (2001), 7998.
Bettis, J. C.; Bizjak, J.; and Lemmon, M.. “Managerial Ownership, Incentive Contracting, and the Use of Zero-Cost Collars and Equity Swaps by Corporate Insiders.” Journal of Financial and Quantitative Analysis, 36 (2001), 345370.
Bodie, Z.; Merton, R. C.; and Samuelson, W. F.. Labor Supply Flexibility and Portfolio Choice in a Life Cycle Model.” Journal of Economic Dynamics and Control, 16 (1992), 427449.
Brav, A.; Constantinides, G. M.; and Geczy, C. C.. “Asset Pricing with Heterogeneous Consumers and Limited Participation: Empirical Evidence.” Journal of Political Economy, 110 (2002), 793824.
Choi, J. J.; Laibson, D.; Madrian, B.; and Metrick, A.. “Defined Contribution Pensions: Plan Rules, Participant Decisions and the Path of Least Resistance.” NBER Working Paper 8655 (2001).
Choi, J. J.; Laibson, D.,; Madrian, B.; and Metrick, A.. “Employee Investment Decisions about Company Stock.” In Pension Design and Structure: New Lessons From Behavioral Finance, Mitchell, O. S. and Utkus, S., eds. New York, NY: Oxford University Press Inc. (2004).
Clark, R. L.; Goodfellow, G. P.; Schieber, S. J.; and Warwick, D.. “Making the Most of 401(k) Plans: Who's Choosing What?” In Forecasting Retirement Needs and Retirement Wealth, Mitchell, O., Hammond, P. B., and Rappaport, A. M., eds. Philadelphia, PA: University of Pennsylvania Press (1999).
Clark, R. L., and Schieber, S.. “Factors Affecting Participation Levels in 401(k) Plans.” In Living with Defined Contribution Plans, Mitchell, O. S. and Schieber, S. J., eds. Philadelphia, PA: University of Pennsylvania Press (1998).
Cohen, L. “Loyalty Based Portfolio Choice.” Working Paper, University of Chicago (2004).
CPS, . “Employee Tenure in the Mid-1990s.” CPS Publications, 01 30, 1997.
Degeorge, F.; Jenter, D.; Moel, A.; and Tufano, P.. “Selling Company Shares to Reluctant Employees: France Telecom's Experience.” Journal of Financial Economics, 71 (2004), 169202.
Dwyer, P.; Gilkeson, J.; and List, J.. “Gender Differences in Revealed Risk Taking: Evidence from Mutual Fund Investors.” Economic Letters, 76 (2002), 151159.
Goodfellow, G. P., and Schieber, S. J.. “Investment of Assets in Self-Directed Retirement Plans.” In Positioning Pensions for the Twenty-First Century, Gordon, M. S., Mitchell, O. S., and Twinney, M. M., eds. Philadelphia, PA: University of Pennsylvania Press (1997).
Greene, W. H.Econometric Analysis. Upper Saddle River, NJ: Prentice-Hall, Inc. (1997).
Hewitt Associates LLC. 2003 Hewitt Universe Benchmarks-How Well Are Employees Saving and Investing in 401(k) Plans (2003)
Huberman, G.Familiarity Breeds Investment.” Review of Financial Studies, 14 (2001), 659680.
Huberman, G., and Jiang, W.. “Offering vs. Choice in 401(k) Plans: Equity Exposure and Number of Funds.” Journal of Finance, 61 (2006), 763801.
Jagannathan, R., and Kocherlakota, N. R.. “Why Should Older People Invest Less in Stocks Than Younger People.” Quarterly Review Federal Reserve of Minneapolis, Summer (1996), 1123.
John Hancock Financial Services. The Sixth Defined Contribution Plan Survey (1999).
Liang, N., and Weisbenner, S.. “Investor Behavior and Purchase of Company Stock in 401(k) Plans- The Importance of Plan Design.” Working Paper, Board of Governors of the Federal Reserve System (2002).
Mankiw, G. N., and Zeldes, S. P.. “The Consumption of Stockholders and Nonstockholders.” Journal of Financial Economics, 29 (1991), 97112.
Meulbroek, L. “Company Stock in Pension Plans: How Costly Is It?” Harvard Business School Working Paper 02–058 (2002).
Munnell, A. H.; Sunden, A.; and Taylor, C.. “What Determines 401(k) Participation and Contributions?Social Security Bulletin, 64 (2001/2002), 6475.
NASD Press Release. “NASD Warns Investors Too Much Company Stock Can Jeopardize Financial Future: Diversification is Key to Reducing Risk,” 02 17, 2005.
Ofek, E., and Yermack, D.. “Taking Stock: Equity-Based Compensation and the Evolution of Managerial Ownership.” Journal of Finance, 55 (2000), 13671384.
Poterba, J. M.Lessons from Enron: Employer Stock and 401(k) Plans.” American Economic Review, 93 (2003), 398404.
Sengmuller, P. “Performance Predicts Asset Allocation: Company Stock in 401(k) Plans.” Working Paper, Columbia University (2002).
Sunden, A. E., and Surette, B. J.. “Gender Differences in the Allocation of Assets in Retirement Savings Plans.” American Economic Review, 88 (1998), 207211.
Thaler, R. H.Mental Accounting Matters.” Journal of Behavioral Decision Making, 12 (1999), 183206.
Vissing-Jorgensen, A.Limited Asset Market Participation and the Elasticity of Intertemporal Substitution.” Journal of Political Economy, 110 (2002), 825853.

Do Behavioral Biases Vary across Individuals? Evidence from Individual Level 401(k) Data

  • Julie R. Agnew (a1)


Full text views

Total number of HTML views: 0
Total number of PDF views: 0 *
Loading metrics...

Abstract views

Total abstract views: 0 *
Loading metrics...

* Views captured on Cambridge Core between <date>. This data will be updated every 24 hours.

Usage data cannot currently be displayed