Asset Allocation and Information Overload: The Influence of Information Display, Asset Choice and Investor Experience

This paper investigates three common differences among defined contribution plans that may lead to varying degrees of information overload. We hypothesize that information overload is one reason participants in defined contribution plans often choose the default options. In two experiments, we manipulate the display of the investment information, the number of choices offered, and the similarity between the investment options offered. In addition, we measure all of the participants’ financial knowledge and include this measure as an independent variable in the study. We test how these plan changes and the individual’s financial knowledge influence the participant’s feelings of information overload, decision satisfaction and choice of the default. The main contribution of this analysis is that it explores the interaction between the individual’s tested financial knowledge and the manipulated plan features. The findings suggest that the success of certain plan features depends strongly on the financial background of the participant and raises important concerns about financial education.