Based on a survey among 2,646 members, we study the effect of choice overload, risk tolerance, and subjective knowledge on self-reported choice behavior and perceptions of financial well-being.
Regarding choice behavior, we find that members who are more risk-averse and report low levels of subjective knowledge tend to invest in the default fund – a fund that is, however, one of the riskiest on the choice menu. On top of this mismatch between members’ risk preferences and their investment choices, we also find that risk-averse members and members with low subjective knowledge are more likely to feel negative about their future financial well-being.
We also see a strong and positive correlation between financial well-being and choice appreciation, whereas the act of choosing the fund has only minor impact. Based on our results, we derive suggestions for adjusting the choice architecture in choicebased pension schemes.