Behavioral biases in pension fund trustees’ decision-making

Article


Weiss-Cohen, Leonardo, Ayton, Peter, Clacher, Iain and Thoma, V. 2018. Behavioral biases in pension fund trustees’ decision-making. Review of Behavioural Finance. 11 (2), pp. 128-143.
AuthorsWeiss-Cohen, Leonardo, Ayton, Peter, Clacher, Iain and Thoma, V.
Abstract

Purpose. Behavioral finance research has almost exclusively investigated
the decision-making of lay individuals, mostly ignoring more sophisticated
institutional investors. This paper aims to better understand the relatively
unexplored field of investment decisions made by pension fund trustees, an
important subset of institutional investors, and identify future avenues of
further exploration.
Approach. This paper starts by setting out the landscape in which pension
fund trustees operate and make their decisions, followed by a literature
review of the extant behavioral finance research applicable to similar situations.
Findings. Despite receiving training and accumulating experience in financial
markets, these are limited and sparse, therefore pension fund trustees
are unlikely to be immune from behavioral biases. Trustees make decisions
in groups, are heavily reliant on advice, and make decisions on behalf of
others. Research in those areas have uncovered many inefficiencies. It is
still unknown how this specific context can affect the psychological effects
on their decisions.
Implications. Given how much influence trustees’ decisions have on asset
allocation and by extension in financial markets, this is a surprising state of
affairs. Research in behavioral finance has had a marked influence on policy
in the past and so we anticipate that exploring the decisions made within
pension funds may have wide ramifications for the industry.
Value. As far as we are aware, no behavioral research has empirically
tested pension fund trustees’ decisions to investigate how the combination
of group decisions, advice, and surrogacy influence their decisions and, ultimately,
the sustainability of our pensions.

JournalReview of Behavioural Finance
Journal citation11 (2), pp. 128-143
ISSN1940-5979
Year2018
PublisherEmerald
Accepted author manuscript
License
File Access Level
Anyone
Digital Object Identifier (DOI)doi:10.1108/RBF-05-2018-0049
Web address (URL)https://doi.org/10.1108/RBF-05-2018-0049
Publication dates
Online28 Jun 2019
Publication process dates
Deposited23 Jul 2018
Accepted20 May 2018
Accepted20 May 2018
Copyright information© 2018 Emerald
LicenseAll rights reserved
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https://repository.uel.ac.uk/item/84818

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