Do Behavioral Biases Vary across Individuals ? : Evidence from Individual Level

This paper investigates whether certain individuals are prone to behavioral biases in their 401(k) investments. Using demographic data and allocation information for over 73,000 employees, the biases examined include two “allocation biases” and a “participation bias.” The findings suggest that higher salaried employees tend to make significantly better choices. Participants earning $100,000 hold 12.7 percent less in company stock, are three percent less likely to follow the 1/n heuristic, and are 37.7 percent more likely to participate than those earning $46,000. Women make better choices in two of the three cases and evidence of mental accounting is found. JEL Classification Codes: G11 (Portfolio Choice), G23 (Pension Funds)