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Nudging investors big and small toward better decisions.

Newall, PWS; Love, BC; (2015) Nudging investors big and small toward better decisions. Decision , 2 (4) pp. 319-326. 10.1037/dec0000036. Green open access

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Abstract

Investors significantly reduce their future returns by selecting mutual funds with higher fees, allured by higher past returns that do not predict future performance. This suboptimal behavior, which can roughly halve an investor’s retirement savings, is driven by 2 psychological factors. One factor is difficulty comprehending rate information, which is critical given that mutual fund fees and returns are typically communicated in percentages. A second factor is devaluing small differences in returns or fees (i.e., a peanuts effect). These 2 factors interact such that large investors benefit when fees are stated in currency (as opposed to percentages), whereas small investors benefit from returns stated in currency. These striking results suggest behavioral interventions that are tailored specifically for small and large investors.

Type: Article
Title: Nudging investors big and small toward better decisions.
Open access status: An open access version is available from UCL Discovery
DOI: 10.1037/dec0000036
Publisher version: http://dx.doi.org/10.1037/dec0000036
Language: English
Additional information: © 2015 American Psychological Association This article may not exactly replicate the authoritative document published in the APA journal. It is not the copy of record.
Keywords: information formats, nudge, behavioral change, financial decision making
UCL classification: UCL
UCL > Provost and Vice Provost Offices
UCL > Provost and Vice Provost Offices > School of Life and Medical Sciences
UCL > Provost and Vice Provost Offices > School of Life and Medical Sciences > Faculty of Brain Sciences
UCL > Provost and Vice Provost Offices > School of Life and Medical Sciences > Faculty of Brain Sciences > Div of Psychology and Lang Sciences
UCL > Provost and Vice Provost Offices > School of Life and Medical Sciences > Faculty of Brain Sciences > Div of Psychology and Lang Sciences > Experimental Psychology
URI: https://discovery.ucl.ac.uk/id/eprint/1473283
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