Quiz 11: Behavioral Finance and Defined Contribution Plan Design


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Behavioural Finance is also referred to as Behavioural Economics which is a study of the behaviour of individual investors, group investors, financial analysts etc. in order to determine their decision making. It is method of technical study that involves use of science and techniques to identify and evaluate the different psychological aspects of the individual that affects their decision making process. They also help to find whether the decision made by them is biased or rational. Any decision cannot be rational because of existence of individual own thoughts and lack of accurate information resulting in forming of biased decision. Thus, behavioural finance is a study that helps in finding about such decision and their outcomes

The regulations allow for flexibility in choosing a qualified default investment alternative. Is there a preferred qualified default investment alternative   Is this flexibility and choice necessary   Are the choices more representative of employer needs or due to the lobbying efforts of certain financial service providers   A discussion of these issues could result in spirited debate. Regardless, it will be interesting to gauge familiarity of the class with the possible alternative choices and to poll the class on their view of the need for flexibility for various financial products.

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