Welcome to the 2018 AFS Annual Meeting, being held this year, in conjunction with FPA in Chicago!
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Tuesday, October 2 • 11:30am - 12:20pm
D1b - Why Do People Invest in Overpriced ETFs, Can Behavioral Nudges Help? Results from a Nationally Representative Experiment [CFP ETFs]

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Why does anyone invest in high-priced (over-priced?) index funds when there are low-cost alternates with indistinguishable performance, costing investors approximately $7 billion in unnecessary fees (Cooper et al. 2016)? Does a change in how fees are displayed nudge people away from investing in high-fee index funds and avoid wasting their money? Through a population-based survey experiment, we tested different cognitive mechanisms and heuristics to account for this enduring anomaly and different intervention strategies could potentially rectify it. Our preliminary results reject the hypotheses that when it comes to investing, (a) people are using price as a signal for quality; (b) people are price insensitive. Instead, our preliminary results reveal that many investors seemed to be relying on a naïve diversification heuristic to make investment choices. Changing how fees are displayed had negligible effect on behavior. With appropriate choice architecture policy, this unproductive transfer of wealth may be mitigated.

Author(s): Ray Sin, Ryan O. Murphy, Angela Fontes, Mark Lush


Tuesday October 2, 2018 11:30am - 12:20pm CDT
Michigan 1A

Attendees (3)