Retirement savings investment choices: Sophisticated or naive?

• Little evidence for 1/n heuristic based on the size of investment option menu
• Support for conditional 1/n based on the set of investment options used in choice
• Conditional 1/n supported as measuring sophistication, not loss-aversion
• Low levels of choice and low level of investment menu most common observation
• Evidence of learning given sophisticated choices more likely in subsequent choices

We assess investment sophistication in a large sample of auto-enrolled, retirement plan member choices. A strong preference for using a small number of investment options is provided with little evidence, overall, to support equally weighted allocations. However, when multiple options are selected, one-third are equally weighted allocations and this is more prevalent when an easily divisible number of options are used. Positive learning is suggested in patterns of choices with sophisticated choice more likely in later choices. Possible consequences of menu framing, specifically menu size, do not support influence on effective asset allocations.