Complexity and asset legitimacy in retirement investment

• Laboratory experiment that examines how complexity affects retirement investment decisions.
• Complexity of retirement investment products leads to costly mistakes.
• Individuals fail to minimize account fees or choose the inferior default option.
• Complexity per se has no effect on portfolio risk allocation in the experiment.

Despite their importance, many individuals do not actively manage their retirement investment accounts. We use a laboratory experiment to examine the role that complexity plays in retirement investment decisions. We find that complex fee structures significantly increase both decision errors and default option choices compared with simple fees. We also find evidence of myopic risk aversion while complexity has no effect on the risk profile of investment decisions. The complexity effect is robust to increased asset legitimacy by having subjects earn the investment money in the experiment, although earning the investment money leads to faster learning.