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Social interactions in asset allocation decisions: Evidence from 401(k) pension plan investors

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  • Lu, Timothy (Jun)
  • Tang, Ning

Abstract

This paper investigates social interaction effects on individual asset allocation decisions. Using a rich dataset of 159,329 individuals enrolled in 401(k) plans, we find that individuals are likely to increase (decrease) their risk shares when their coworkers have higher (lower) risk exposures over the last quarter. The social interaction effects are especially strong among individuals with extreme asset allocations and low equity investment performance. We also divide the workplaces into subgroups to examine how social interaction effects vary among coworkers with different backgrounds. Results from additional tests indicate that estimated social interaction effects are not primarily driven by common preferences, common environments, or reverse causality.

Suggested Citation

  • Lu, Timothy (Jun) & Tang, Ning, 2019. "Social interactions in asset allocation decisions: Evidence from 401(k) pension plan investors," Journal of Economic Behavior & Organization, Elsevier, vol. 159(C), pages 1-14.
    • Handle: RePEc:eee:jeborg:v:159:y:2019:i:c:p:1-14
    DOI: 10.1016/j.jebo.2019.01.009
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    Cited by:

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    4. Jinesh Jain & Nidhi Walia & Himanshu Singla & Simarjeet Singh & Kiran Sood & Simon Grima, 2023. "Heuristic Biases as Mental Shortcuts to Investment Decision-Making: A Mediation Analysis of Risk Perception," Risks, MDPI, vol. 11(4), pages 1-22, April.

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    More about this item

    Keywords

    Social interactions; Asset allocation; Household finance; Retirement wealth; 401(k) plans;
    All these keywords.

    JEL classification:

    • D1 - Microeconomics - - Household Behavior
    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty

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