TY  - JOUR
AU  - Choi,James J.
AU  - Laibson,David
AU  - Madrian,Brigitte C.
TI  - Why Does the Law of One Price Fail? An Experiment on Index Mutual Funds
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 12261
PY  - 2006
Y2  - May 2006
UR  - http://www.nber.org/papers/w12261
L1  - http://www.nber.org/papers/w12261.pdf
N1  - Author contact info:
James J. Choi
Yale School of Management
135 Prospect Street
P.O. Box 208200
New Haven, CT 06520-8200
E-Mail: james.choi@yale.edu

David Laibson
Department of Economics
Littauer M-12
Harvard University
Cambridge, MA 02138
Tel: 617/496-3402
Fax: 617/495-8570
E-Mail: dlaibson@gmail.com

Brigitte C. Madrian
John F. Kennedy School of Government
Harvard University
79 JFK Street
Cambridge, MA 02138
Tel: 617-495-8917
Fax: 617-496-5960
E-Mail: Brigitte_Madrian@Harvard.edu
M2  - featured in NBER digest on 2006-05-29
AB  - Experimental subjects allocate $10,000 across four S&P 500 index funds. Subject rewards depend on the chosen portfolio’s subsequent return. Because the investments are not actually intermediated by the fund companies, portfolio returns are unbundled from non-portfolio services. The optimal portfolio therefore invests 100% in the lowest-cost fund. Nonetheless, subjects overwhelmingly fail to minimize fees. When we make fees transparent and salient, portfolios shift towards cheaper funds, but fees are still not minimized. Instead, subjects place high weight on normatively irrelevant historical returns. Subjects who choose high-cost index funds are relatively much less confident about their asset allocation choices.
ER  -