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Offering versus Choice in 401(k) Plans: Equity Exposure and Number of Funds




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    • Both authors are at the Finance and Economics Division, Columbia Business School. An earlier version of this article circulated under the title “The 1/N Heuristic in 401(k) Plans.” The authors thank Steve Utkus and Gary Mottola from Vanguard® Center for Retirement Research for making the data available and providing us constructive comments throughout the process. We are grateful to Tano Santos who gave extensive comments on various versions of the draft. We also thank an anonymous referee, Julie Agnew, Brad Barber, Shlomo Benartzi, Stefano DellaVigna, David Goldreich, Ray Fisman, Garud Iyengar, Sheena Iyengar, Eric Johnson, Nellie Liang, Toby Moskowitz, Jim Powell, Ariel Rubinstein, Rob Stambaugh (editor), Suresh Sundaresan Vytlacil, Elke Weber, Steve Zeldes, and seminar participants at Amsterdam, Berkeley, CEIBS, CEMFI, Columbia, Duke, the Federal Reserve Board, Hebrew University, HKUST, Peking University, Pompeu Fabra, Tel Aviv, the Wharton Workshop on Household Portfolio Choice and Financial Decision Making, the European Finance Association 2004 meetings, the Stockholm Institute for Financial Research Conference on Portfolio Choice and Investor Behavior, and the NBER Behavioral Finance meetings for their helpful suggestions. We are particularly grateful to Richard Thaler who pointed out oversights in an early draft. Lihong Zhou and Frank Yu Zhang provided excellent research assistance.


Records of over half a million participants in more than 600 401(k) plans indicate that participants tend to allocate their contributions evenly across the funds they use, with the tendency weakening with the number of funds used. The number of funds used, typically between three and four, is not sensitive to the number of funds offered by the plans, which ranges from 4 to 59. A participant's propensity to allocate contributions to equity funds is not very sensitive to the fraction of equity funds among offered funds. The paper also comments on limitations on inferences from experiments and aggregate-level data analysis.