2-1.7. Option Confusion

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來自 University of Illinois at Urbana-Champaign 的課程

Investments II: Lessons and Applications for Investors

373 個評分

University of Illinois at Urbana-Champaign

Investments II: Lessons and Applications for Investors

373 個評分

課程 4（共 7 門，Specialization Financial Management）

In this course, you will start by reviewing the fundamentals of investments, including the trading off of return and risk when forming a portfolio, asset pricing models such as the Capital Asset Pricing Model (CAPM) and the 3-Factor Model, and the efficient market hypothesis. You will be introduced to the two components of stock returns – dividends and capital gains – and will learn how each are taxed and the incentives provided to investors from a realization-based capital gains tax. You will examine the investment decisions (and behavioral biases) of participants in defined-contribution (DC) pension plans like 401(k) plans in the U.S. and will learn about the evidence regarding the performance of individual investors in their stock portfolios. The course concludes by discussing the evidence regarding the performance of actively-managed mutual funds. You will learn about the fees charged to investors by mutual funds and the evidence regarding the relation between fees charged and fund performance. Segments of the portfolios of mutual funds that may be more likely to outperform and examples of strategies designed to “earn alpha” will also be introduced. Learners are welcome to take this course even if they have not completed "Investments I: Fundamentals of Performance Evaluation," as the first module contain a review of investment fundamentals and regression analysis to get everyone up to speed. Also, the course contains several innovative features, including creative out-of-the-studio introductions followed by quick-hitting "Module in 60" countdowns that highlight what will be covered in each module, four "Faculty Focus" interview episodes with leading professors in finance, and a summary of each module done with the help of animations! This course is part of the iMBA offered by the University of Illinois, a flexible, fully-accredited online MBA at an incredibly competitive price. For more information, please see the Resource page in this course and onlinemba.illinois.edu.

從本節課中

Module 2: Investment Decisions in DC Pension Plans

In Module 2, we discuss the investment decisions of participants in defined-contribution (DC) pension plans like 401(k) plans in the U.S. Not falling prey to common behavioral biases is key to sound financial decision-making in these retirement plans, so we will discuss common behavioral biases of DC pension plan participants.

2-1.1. Overview of Key Biases in Decisions9:32

2-1.2. Representativeness4:29

2-1.3. Familiarity Bias and Background Risk22:22

2-1.4. Endorsement Effects7:27

2-1.5. Naïve Diversification18:47

2-1.6. Inertia4:58

2-1.7. Option Confusion5:36

2-1.8. Power of Defaults16:19

2-1.9. Bottom Line on Biases in Investment Decisions7:53

與講師見面

Scott Weisbenner
William G. Karnes Professor of Finance
Department of Finance, College of Business

[MUSIC]

We're really going down this checklist here.

We're already up to option confusion.

Okay and you probably experience this, or I know, at least I do In my personal life,

so what's an example of this?

So I'm in Las Vegas, I'm kind of hungry, I want to get some M&Ms.

You go into the M&Ms store and whoa, it's like visual blitzkrieg here.

Do I maybe just get, so many options here, I'm confused,

I decide to just get the Snicker bar.

Okay, so I haven't had this experience with M&M's but

let me tell you an experience I did have.

I go to the local supermarket, kind of a big chain.

I want to get some regular Oreo cookies.

I kind of know one Oreo cookie, I look for the Oreo cookies.

I actually count, there's 16 varieties, including pumpkin spice.

And I can't find the old fashioned Oreo cookie.

So too much, again,

kind of go away with the consolation prize of the standard Snicker bar.

But kind of the psychological phenomenon of choice overload is If you

give people too many choices, do they mentally just shut down, and

then not make any choice, or kind of choose not to participate?

Now from a economist's perspective, okay.

You would think more choice has to be good.

But from a psychology perspective more choice could, behaviorally,

potentially be bad.

Here is kind of another example I'm looking at

some of these financial district, Callahan Tunnel,

kind of Broad Street, Aquarium, I guess this has to be from Boston.

This again, this kind of financial district,

this is like information overload!

If I'm driving the car and seeing this sign I'm probably freaking out,

and trying to get off the highway as soon as possible.

Again, option confusion doesn't lead to just a mental shutdown.

Is choice a good or bad thing, in all these examples,

is kind of the fundamental question, applies to finance as well, okay.

Behaviorally, too much choice can potentially be

a bad thing if it causes people to mentally shut down, or

mentally then adopt kind of go to, simple strategies.

In my Oreo example, I want an Oreo, I'm confused by seeing pumpkin spice Oreos.

I just kind of take the kind of standard Snickers candy bar,

kind of the old tried and true here.

Participants in 401K plans, retirement plans, if they're presented with too many

investments options, empirically Iyengar, Huberman and Jiang actually find

that they're less likely to participate at all in defined contribution plans.

Actually a stunning finding.

You give people more options,

they may be less likely to actually participate in the first place.

And here's kind of a figure that documents their finding very well.

You can actually see here that as you, and they get this from regression,

where they're controlling for several individual factors that might

determine whether you participate in the plan or not.

Like your age and your income, they're controlling for plan

level factors like how large is the plan, how many people are participating in it.

And they have a very striking relationship,

you can see with this solid black line.

That the more options there are in the plan, the lower the participation rate is.

And these dotted line heres,

on the top and bottom, are the 95% confidence intervals.

But a very, very striking result that more fund options,

less people participating in the plan.

We think we're providing more choice, but instead we're actually maybe making people

more confused, and less likely to save In the first place.

And this is a concern because the average number of

investment options has gone up over time.

The dark blue bars are counting target date funds as

one single fund and pension plans.

You may have balance fund options that are set aside for

people who are going to retire in 2035, 2040, 2045, 2050.

I just ticked four or five separate funds,

do we want to count that as one group of fund?

Or do we want to count as four or five different funds?

That's the difference between the light blue and the dark blue bars.

But the key point is the number of investment options

has been increasing a lot.

One of the potential down sides of that is if people are getting more confused with

presented with all these choices,

are they just likely to participate in the first place?

And remember that my own personal anecdote of the 403B plan in June

of 2016 that had 206 investment options to think about, okay?

So we talked about the research of our participants with too many options,

seem to be less likely to participate in a plan at all.

Another interesting result that if they do participate,

they're more likely to pick a familiar option like investing in company stock.

So again, think of Scott looking for the Oreos, there's too many options.

Instead, he just goes with the old Snickers bar.

[SOUND]

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