Many tests of asset pricing models address only the pricing predictions - but these pricing predictions rest on portfolio choice predictions which seem obviously wrong. This paper suggests a new approach to asset pricing and portfolio choices, based on unobserved heterogeneity. This approach...

Individual investors select high-fee index mutual funds despite the fact that the future payouts are nearly identical. We offer an explanation for this violation of the Law of One Price based on investor desire to diversify. While diversification in some settings may be beneficial, in the case...

Assuming that agents' preferences satisfy first-order stochastic dominance, we show how the Expected Utility paradigm can rationalize all optimal investment choices: the optimal investment strategy in any behavioral law-invariant (state-independent) setting corresponds to the optimum for an...

Socially responsible investment (SRI) is increasingly prevalent in financial markets and is characterized by the integration of financial and nonfinancial objectives. This paper investigates the influence of wealth concerns and moral concerns on individual investors' decisions to invest...

We present an experiment that investigates the effect of the fee structure and past returns on mutual fund choice. We find that subjects pay too little attention to the (periodic and small) operation expenses fee, but the more salient front-end load is used as a commitment device and leads to...

We find stochastic uniform inefficiency of many widely held (active) portfolios and fund strategies relative to popular benchmarks. Uniformity provides robust findings over general classes of utility (loss) functions and unknown distribution of returns. Evidence is based on statistical tests for...

This paper reports on the results of an experiment in which MBA student participants select securities at random for the purpose of reproducing the familiar exponentially declining relationship between portfolio volatility and number of securities. We find that the overall set of participants...

The question of optimal presentation format and choice architecture for investment decisions has gained momentum among researchers, policy makers, and practitioners alike. Motivated by the question how to provide information to investors in a way to improve financial decision-making, we conduct...