Why do retail investors make costly mistakes? An experiment on mutual fund choice

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 experiment to disentangle possible explanations for inefficient investment decisions. The experiment employs a simplified construct of an employee’s allocation among the options in a retirement plan coupled with technology that enables us to collect data on the specific information that investors choose to view. In addition to collecting general information about the process by which investors choose among mutual fund options, we employ an experimental manipulation to test the effect of an instruction on the importance of mutual fund fees. Pairing this instruction with simplified fee disclosure allows us to distinguish between motivation-limits and cognition-limits as explanations for the widespread findings that investors ignore fees in their investment decisions. Our results offer partial but limited grounds for optimism. On the one hand, within our simplified experimental construct, our subjects allocated more money, on average, to higher-value funds. Furthermore, subjects who received the fees instruction paid closer attention to mutual fund fees and allocated their investments into funds with lower fees. On the other hand, the effects of even a blunt fees instruction were limited, and investors were unable to identify and avoid clearly inferior fund options. In addition, our results suggest that excessive, naïve diversification strategies are driving many investment decisions. Although our findings are preliminary, they suggest valuable avenues for future research and important implications for regulation of retail investing

Absorption of Energy at a Metallic Surface due to a Normal Electric Field

The effect of an oscillating electric field normal to a metallic surface may be described by an effective potential. This induced potential is calculated using semiclassical variants of the random phase approximation (RPA). Results are obtained for both ballistic and diffusive electron motion, and for two and three dimensional systems. The potential induced within the surface causes absorption of energy. The results are applied to the absorption of radiation by small metal spheres and discs. They improve upon an earlier treatment which used the Thomas-Fermi approximation for the effective potential.Comment: 19 pages (Plain TeX), 2 figures, 1 table (Postscript

The Quantum-Classical Crossover in the Adiabatic Response of Chaotic Systems

The autocorrelation function of the force acting on a slow classical system, resulting from interaction with a fast quantum system is calculated following Berry-Robbins and Jarzynski within the leading order correction to the adiabatic approximation. The time integral of the autocorrelation function is proportional to the rate of dissipation. The fast quantum system is assumed to be chaotic in the classical limit for each configuration of the slow system. An analytic formula is obtained for the finite time integral of the correlation function, in the framework of random matrix theory (RMT), for a specific dependence on the adiabatically varying parameter. Extension to a wider class of RMT models is discussed. For the Gaussian unitary and symplectic ensembles for long times the time integral of the correlation function vanishes or falls off as a Gaussian with a characteristic time that is proportional to the Heisenberg time, depending on the details of the model. The fall off is inversely proportional to time for the Gaussian orthogonal ensemble. The correlation function is found to be dominated by the nearest neighbor level spacings. It was calculated for a variety of nearest neighbor level spacing distributions, including ones that do not originate from RMT ensembles. The various approximate formulas obtained are tested numerically in RMT. The results shed light on the quantum to classical crossover for chaotic systems. The implications on the possibility to experimentally observe deterministic friction are discussed.Comment: 26 pages, including 6 figure

The Knowledge Gap in Workplace Retirement Investing and the Role of Professional Advisors

The dramatic shift from traditional pension plans to participant-directed 401(k) plans has increased the obligation of individual investors to take responsibility for their own retirement planning. With this shift comes increasing evidence that investors are making poor investment decisions. This Article seeks to uncover the reasons for poor investment decisions. We use a simulated retirement investing task and a new financial literacy index to evaluate the role of financial literacy in retirement investment decisionmaking in a group of nonexpert participants. Our results suggest that individual employees often lack the skills necessary to support the current model of participant-directed investing. We show that less knowledgeable participants allocate too little money to equity, engage in naive diversification, fail to identify dominated funds, and are inattentive to fees. Over the duration of a retirement account, these mistakes can cost investors hundreds of thousands of dollars. We then explore the capacity of professional advisors to mitigate this problem. Using the same study with a group of professional advisors, we document a predictable but nonetheless dramatic knowledge gap between professionals and ordinary investors. The professional advisors were far more financially literate and made better choices among investment alternatives. Our results highlight the potential value of professional advice in mitigating the effects of financial illiteracy in retirement planning. Our findings suggest that, in weighing the costs of heightened regulation against the value of reducing possible conflicts of interest, regulators need to be sensitive to the knowledge gap

A parallel-plate flow chamber to study initial cell adhesion on a nanofeatured surface

Cells in the human body come across many types of information, which they respond to. Both material chemistry and topography of the surface where they adhere have an effect on cell shape, proliferation, migration, and gene expression. It is possible to create surfaces with topography at the nanometric scale to allow observation of cell-topography interactions. Previous work has shown that 100-nm-diameter pits on a 300-nm pitch can have a marked effect in reducing the adhesion of rat fibroblasts in static cultures. In the present study, a flow of cell suspension was used to investigate cell adhesion onto nanopits in dynamic conditions, by means of a parallel-plate flow chamber. A flow chamber with inner nanotopography has been designed, which allows real-time observation of the flow over the nanopits. A nanopitted pattern was successfully embossed into polymethylmethacrylate to meet the required shape of the chamber. Dynamic cell adhesion after 1 h has been quantified and compared on flat and nanopitted polymethylmethacrylate substrates. The nanopits were seen to be significantly less adhesive than the flat substrates (p<0.001), which is coherent with previous observations of static cultures

Research study on high energy radiation effect and environment solar cell degradation methods

The most detailed and comprehensively verified analytical model was used to evaluate the effects of simplifying assumptions on the accuracy of predictions made by the external damage coefficient method. It was found that the most serious discrepancies were present in heavily damaged cells, particularly proton damaged cells, in which a gradient in damage across the cell existed. In general, it was found that the current damage coefficient method tends to underestimate damage at high fluences. An exception to this rule was thick cover-slipped cells experiencing heavy degradation due to omnidirectional electrons. In such cases, the damage coefficient method overestimates the damage. Comparisons of degradation predictions made by the two methods and measured flight data confirmed the above findings

Staggered Ladder Spectra

We exactly solve a Fokker-Planck equation by determining its eigenvalues and eigenfunctions: we construct nonlinear second-order differential operators which act as raising and lowering operators, generating ladder spectra for the odd and even parity states. These are staggered: the odd-even separation differs from even-odd. The Fokker-Planck equation describes, in the limit of weak damping, a generalised Ornstein-Uhlenbeck process where the random force depends upon position as well as time. Our exact solution exhibits anomalous diffusion at short times and a stationary non-Maxwellian momentum distribution.Comment: 4 pages, 2 figure

Assessment of treatment response in tuberculosis

Antibiotic treatment of tuberculosis has a duration of several months. There is significant variability of the host immune response and the pharmacokinetic-pharmacodynamic properties of Mycobacterium tuberculosis sub-populations at the site of disease. A limitation of sputum-based measures of treatment response may be sub-optimal detection and monitoring of Mycobacterium tuberculosis sub-populations. Potential biomarkers and surrogate endpoints should be benchmarked against hard clinical outcomes (failure/relapse/death) and may need tailoring to specific patient populations. Here, we assess the evidence supporting currently utilized and future potential host and pathogen-based models and biomarkers for monitoring treatment response in active and latent tuberculosis. Biomarkers for monitoring treatment response in extrapulmonary, pediatric and drug resistant tuberculosis are research priorities

Ergodic and non-ergodic clustering of inertial particles

We compute the fractal dimension of clusters of inertial particles in mixing flows at finite values of Kubo (Ku) and Stokes (St) numbers, by a new series expansion in Ku. At small St, the theory includes clustering by Maxey's non-ergodic 'centrifuge' effect. In the limit of St to infinity and Ku to zero (so that Ku^2 St remains finite) it explains clustering in terms of ergodic 'multiplicative amplification'. In this limit, the theory is consistent with the asymptotic perturbation series in [Duncan et al., Phys. Rev. Lett. 95 (2005) 240602]. The new theory allows to analyse how the two clustering mechanisms compete at finite values of St and Ku. For particles suspended in two-dimensional random Gaussian incompressible flows, the theory yields excellent results for Ku < 0.2 for arbitrary values of St; the ergodic mechanism is found to contribute significantly unless St is very small. For higher values of Ku the new series is likely to require resummation. But numerical simulations show that for Ku ~ St ~ 1 too, ergodic 'multiplicative amplification' makes a substantial contribution to the observed clustering.Comment: 4 pages, 2 figure