A News-Utility Theory for Inattention and Delegation in Portfolio Choice

Pagel, Michaela

doi:10.3982/ecta14417

Cited by 84 publications

(25 citation statements)

References 122 publications

(107 reference statements)

Supporting

Mentioning

Contrasting

Order By: Relevance

“…Andries and Haddad (2015) and Pagel (2016) present theoretical models where people are inattentive to their portfolios because they trade off the benefit of improved economic choices from better information against the fear of learning negative news. The high return-viewing compliance we obtain from a $1 payment places an upper bound on how strong this fear can be.…”

Section: First Aggregation Experiments Resultsmentioning

confidence: 99%

Does Aggregated Returns Disclosure Increase Portfolio Risk Taking?

Beshears

Choi

Laibson

et al. 2016

The Review of Financial Studies

View full text Add to dashboard Cite

Many experiments have found that participants take more investment risk if they see returns less frequently, see portfolio-level returns (rather than each individual asset’s returns), or see long-horizon (rather than one-year) historical return distributions. In contrast, we find that such information aggregation treatments do not affect total equity investment when we make the investment environment more realistic than in prior experiments. Previously documented aggregation effects are not robust to changes in the risky asset’s return distribution or the introduction of a multi-day delay between portfolio choice and return realizations.

show abstract

Section: First Aggregation Experiments Resultsmentioning

confidence: 99%

Does Aggregated Returns Disclosure Increase Portfolio Risk Taking?

Beshears

Choi

Laibson

et al. 2016

The Review of Financial Studies

View full text Add to dashboard Cite

show abstract

“…None integrates the opportunity cost of managing one's own finances, however, which we believe to be an important factor driving the life cycle demand for financial advice. Pagel (2018) recently introduced news-utility theory to show within a life-cycle portfolio choice model that such (behavioral) preferences are able to account for inattention, predict realistic stock portfolio shares, involve non-participation in the stock market, and include a willingness to pay for delegated portfolio management.…”

Section: Related Studies and Hypothesis Developmentmentioning

confidence: 99%

How Cognitive Ability and Financial Literacy Shape the Demand for Financial Advice at Older Ages

2019

View full text Add to dashboard Cite

We investigate how cognitive ability and financial literacy shape older Americans' demand for financial advice. Using an experimental module at the Health and Retirement Study, we show that cognitive ability and financial literacy strongly improve the quality but not the quantity of financial advice sought: more financially literate and cognitively able seek financial help from professionals. They also utilize more 'free' financial advice that may entail potential conflicts of interest. Finally, among those not seeking financial advice, people with higher cognitive function tend to distrust financial advisors, leading them to avoid these services.

show abstract

“…Reference point models with news utility may also explain consumption dynamics Rabin, 2006, 2009;Pagel, 2017). In these models, total utility (i.e., the agent's objective) comes not only from current consumption, but also from "news utility" reflecting changes in expectations about current and future consumption utility.…”

Section: Purchases Of Durablesmentioning

confidence: 99%

Behavioral Household Finance

Beshears

Choi

Laibson

et al. 2018

View full text Add to dashboard Cite

This chapter provides an overview of household finance. The first part summarizes key facts regarding household financial behavior, emphasizing empirical regularities that are inconsistent with the standard classical economic model and discussing extensions of the classical model and explanations grounded in behavioral economics that can account for the observed patterns. This part covers five topics: consumption and savings, borrowing, payments, asset allocation, and insurance. The second part addresses interventions that firms, governments, and other parties deploy to shape household financial outcomes: education and information, peer effects and social influence, product design, advice and disclosure, choice architecture, and interventions that directly target prices or quantities. This chapter is divided into two parts, each of which is further divided into several sections. The first part summarizes key facts regarding household financial behavior, emphasizing empirical regularities that are inconsistent with the standard classical economic model and discussing both extensions of the classical model and explanations grounded in behavioral economics that can account for the observed patterns. This part covers five topics: (I) consumption and savings, (II) borrowing, (III) payments, (IV) asset allocation, and (V) insurance. The second part addresses interventions that firms, governments, and other parties deploy to shape household financial outcomes: (VI) education and information, (VII) peer effects and social influence, (VIII) product design, (IX) advice and disclosure, (X) choice architecture, and (XI) interventions that directly target prices or quantities. The final section of the paper (XII) concludes. John BeshearsWe offer broad coverage of the household finance literature, but we limit the scope of our discussion along some dimensions. We focus on the U.S. institutional context and on empirical work based on U.S. data, although we do bring evidence from other wealthy countries to bear when germane and occasionally reference evidence from developing countries. We address household asset allocation but do not draw out its implications for asset pricing, which are covered by the asset pricing chapter in this handbook. Although household decisions regarding health care are relevant to household finance, we largely omit this literature from our chapter because it is covered in depth in the chapter on behavioral health economics. Finally, there is some overlap between our section on financial product design and the chapter on behavioral industrial organization; we refer readers to that chapter for related material on that topic. Part 1: Facts I. Consumption and SavingsBeginning with the seminal work of Modigliani and Brumberg (1954) and Friedman (1957), economists have embraced the view that households choose to save and borrow to smooth consumption over the lifecycle. Intuitively, if agents have concave utility functions over consumption, then they should spread consumption across time to optimally...

show abstract

A News-Utility Theory for Inattention and Delegation in Portfolio Choice

Cited by 84 publications

References 122 publications

Does Aggregated Returns Disclosure Increase Portfolio Risk Taking?

Does Aggregated Returns Disclosure Increase Portfolio Risk Taking?

How Cognitive Ability and Financial Literacy Shape the Demand for Financial Advice at Older Ages

Behavioral Household Finance

Contact Info

Product

Resources

About