Long Term Savings Decisions: Inertia, Peer Effects and Ethnicity

Posted: 6 Apr 2015 Last revised: 8 Mar 2016

See all articles by Yevgeny Mugerman

Yevgeny Mugerman

Bar Ilan University

Orly Sade

Hebrew University of Jerusalem - Department of Finance

Moses Shayo

The Hebrew University of Jerusalem - Department of Economics

Date Written: April 5, 2015

Abstract

In 2005, a drastic reform in the Israeli capital market shifted the power to choose savings vehicles from employers to individuals. Using a unique dataset from a large employer, this event provides us a rare window into individuals’ savings decisions and the effect of their social environment. In the first year following the reform's implementation, 7% of the employees switched out of the fund in which they all previously saved. Choice of fund was not associated with observable measures of fund performance, but was strongly affected by the employees’ social environment. Exploiting within-department variation in peer groups, we find that savings decisions were strongly influenced by the choices of co-workers from the same ethnic group. Interviews also point to the influence of non-professional colleagues.

Keywords: Long Term Savings; Financial reform; Savings decisions; Peer effects

Suggested Citation

Mugerman, Yevgeny and Sade, Orly and Shayo, Moses, Long Term Savings Decisions: Inertia, Peer Effects and Ethnicity (April 5, 2015). Journal of Economic Behavior and Organization, Vol. 106, 2014, Available at SSRN: https://ssrn.com/abstract=2590090

Yevgeny Mugerman

Bar Ilan University ( email )

Ramat Gan
5290002
Israel

Orly Sade (Contact Author)

Hebrew University of Jerusalem - Department of Finance ( email )

Mount Scopus
Jerusalem, 91905
Israel
972 2 588 3227 (Phone)

Moses Shayo

The Hebrew University of Jerusalem - Department of Economics ( email )

Mount Scopus
Jerusalem, Jerusalem 91905
Israel

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