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Why Do Retail Investors Make Costly Mistakes? An Experiment On Mutual Fund Choice, Jill E. Fisch, Tess Wilkinson-Ryan
Why Do Retail Investors Make Costly Mistakes? An Experiment On Mutual Fund Choice, Jill E. Fisch, Tess Wilkinson-Ryan
All Faculty Scholarship
There is mounting evidence that retail investors make predictable, costly investment mistakes, including underinvestment, naïve diversification, and payment of excessive fund fees. Over the past thirty-five years, however, participant-directed 401(k) plans have largely replaced professionally managed pension plans, requiring unsophisticated retail investors to navigate the financial markets themselves. Policy-makers have struggled with regulatory interventions designed to improve the quality of investment decisions without a clear understanding of the reasons for investor mistakes. Absent such an understanding, it is difficult to design effective regulatory responses.
This article offers a first step in understanding the investor decision-making process. We use an internet-based …