Managing a 401(k) Account: An Experiment on Asset Allocation

This paper reports the results of a behavioral finance experiment on asset allocation. Subjects managed a portfolio and made repeated asset allocations to stocks, bonds, and cash. The task was designed to be similar to what a typical investor would face in managing a 401(k) account for twenty years. The primary manipulation in the experiment was the introduction of portfolio future value projections. The results indicate that subjects who receive future value projections create portfolios with higher allocations to stocks and higher portfolio expected return, and allocations to stocks tends to increase with age. In the aggregate subjects do reasonably well in creating efficient portfolios. The results have implications for reducing myopic loss aversion and for the efficient financial engineering of defined contribution accounts.