Wednesday, December 18, 2019

Beanie Babies

There are a lot of similarities between the boom and bust of the Beanie Baby market in the 1990s and booms and busts in financial markets.  They are often based on the so-called "greater fool theory" which is essentially "I know that I am a fool for buying this at this price, but I am counting on a greater fool to buy it from me in the future".

Anyhow, here's a fun article about the Beanie Baby market: https://www.theguardian.com/lifeandstyle/shortcuts/2019/jun/19/what-beanie-babies-taught-a-generation-about-the-horrors-of-boom-and-bust

Friday, December 13, 2019

Alphabeticity Bias in 401(k) Investing

It's interesting how little biases creep into how people make investing choices.  For example, the alphabetical order of the 401K choices listed in a plan brochure (or website) can influence the choices that investors make.

This is discussed in a recent paper published in the Financial Review (an academic journal that I c0-edit). 

Here's the paper
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3295400&mod=article_inline

And here's a link to a discussion in the WSJ. https://www.wsj.com/articles/for-some-401-k-holders-picking-funds-is-as-simple-as-abc-unfortunately-11575861000?shareToken=st5b42cefaa561463394d1c01677966180

There are several solutions to this problem.

  1. Don't have so many options on the plan in the first place.   If there are just 5 choices, people are more likely to work down the full list.
  2. Group choices in more logical groups.   For example, group by "equity" "bonds" "international".  And again, don't provide too many choices.
  3. Allow re-sorting of the list.




A nice discussion of cash - money in short term accounts