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Week 2 - Investment Decisions in DC Pension Plans

key biases in DC pension plan

  • endorsement effect
    • when company match is in company stock, has implicit endorsement effect
  • naiive diversification
    • influenced by composition of choices, even if some of choices are duplicative
      • the marginal funds added are typically stock funds. the more options, more proportion is put into stock funds
  • option confusion - too many options, people either not participate or end up choosing familiar options

Annuities

like insurance. turn lump sum into ganrateed monthly payments regardless of how long you live