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

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. (C) 2019 Elsevier B.V. All rights reserved.