Time is Money: Life Cycle Rational Inertia and Delegation of Investment Management

57 Pages Posted: 13 Dec 2013 Last revised: 2 Jun 2023

See all articles by Hugh Hoikwang Kim

Hugh Hoikwang Kim

University of South Carolina, Darla Moore School of Business

Raimond Maurer

Goethe University Frankfurt - Finance Department

Olivia S. Mitchell

University of Pennsylvania - The Wharton School; University of Pennsylvania - The Wharton School, Pension Research Council; National Bureau of Economic Research (NBER)

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Date Written: December 2013

Abstract

This paper incorporates two empirically-grounded insights into a dynamic life cycle portfolio choice model: the fact that investors forego the opportunity to accumulate job-specific skills when they spend time managing their own money, and the observation that efficiency in financial decision making varies with age. Our calibrated model demonstrates that both factors generate sensible portfolio inactivity patterns consistent with empirical evidence. We also analyze how people optimally choose between actively managing their assets versus delegating the task to financial advisors. Delegation proves valuable to both the young and the old. Our calibrated model quantifies welfare gains from including investment time and money costs as well as delegation in a life cycle setting.

Suggested Citation

Kim, Hugh Hoikwang and Maurer, Raimond and Mitchell, Olivia S., Time is Money: Life Cycle Rational Inertia and Delegation of Investment Management (December 2013). NBER Working Paper No. w19732, Available at SSRN: https://ssrn.com/abstract=2367142

Hugh Hoikwang Kim (Contact Author)

University of South Carolina, Darla Moore School of Business ( email )

1014 Greene Street
Columbia, SC 29208
United States

Raimond Maurer

Goethe University Frankfurt - Finance Department ( email )

Theodor-W.-Adorno-Platz 3
House of Finance
Frankfurt, 60323
Germany

Olivia S. Mitchell

University of Pennsylvania - The Wharton School ( email )

Philadelphia, PA 19104-6365
United States

University of Pennsylvania - The Wharton School, Pension Research Council ( email )

3302 Steinberg Hall-Dietrich Hall
3620 Locust Walk
Philadelphia, PA 19104-6302
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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