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Investor Inattention: A Hidden Cost of Choice in Pension Plans?


  • We are grateful to Finansinspektionen, Fondbolagens Förening, the Pension Authority, and Svensk Fondstatistik for providing us with data, and to NASDAQ OMX and NETSPAR for financial support. We have benefited from helpful correspondence and discussions with Alexander Kerl, Joshua Rauh, Marno Verbeek, Martin Weber, an anonymous referee, and seminar participants at the Stockholm School of Economics, the Institute for Financial Research (SIFR), University of Oxford, University of Zurich, and NETSPAR's international pension workshop in Zurich.


We investigate inattention on the part of pension plan participants using a dataset covering savings in Sweden's Premium Pension System. These data permit direct comparison of the investment behaviours of pension and retail mutual fund investors. Unlike retail mutual fund investors, pension investors do not seem to react to past fund performance. This behaviour means that pension investors face a greater risk of being caught in poorly performing funds. Our evidence suggests that inertia and inattention to past performance may translate into poorer investment results for pension investors. We discuss a potential change in the design of defined contribution pension schemes that may mitigate costs for inattentive investors while maintaining flexibility for attentive investors.