Using Principles from Behavioral Economics to Improve Defined Contribution Plan Performance (DC Plans)

“Herding,” “anchoring,” “recency,” “loss aversion,” and “trend-chasing” are just a few examples of behavioral biases that can negatively impact decision-making for both institutional investors and retirement plan sponsors as well as for plan participants as they seek to achieve their investment goals. For example, recent studies have shown that trend-chasing is less about confidence in managerial skill based on past performance and more about behavioral biases. In fact, a number of behavioral factors can actually hamper decision-making, which poses a problem when dealing with today’s rapidly changing investment markets.