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The TIAA-CREF Institute today announced the winners of the sixteenth annual TIAA-CREF Paul A. Samuelson Award for Outstanding Scholarly Writing on Lifelong Financial Security.
The winners for this year’s award include Harvard Kennedy School's Brigitte C. Madrian, Aetna Professor of Public Policy and Corporate Management, and David I. Laibson, Professor of Economics, both from Harvard University, along with James J. Choi, Associate Professor of Finance, Yale University in recognition of their paper, “Why Does the Law of One Price Fail?-An Experiment on Index Mutual Funds.”
The winning paper highlights the need for increased financial education and clearly demonstrates how education and communication materials can help individuals make better informed investment decisions.
The paper specifically examines why individuals select high-fee index mutual funds over lower-cost options that can produce the same returns. The study asked individuals to allocate $10,000 across four S&P index funds with the objective of maximizing their investment returns. The study found individual investors consistently fail to recognize the impact of fund fees because they place greater emphasis on annualized returns since a fund’s inception. It also found that people with more financial education generally paid lower fees, and those that paid higher fees were less confident that they were making the best investment decision.
“Even those who should have the financial knowledge to make sound investment choices often rely on simple rules of thumb, like strong past performance, when making important investment decisions,” said Samuelson Award judge, Dr. Julie Agnew. “This demonstrates that financial service providers should never assume that individuals are making fully rational decisions that consider the most important investment attributes.”
Madrian's current research focuses on household saving and investment behavior. Her work in this area has impacted the design of employer-sponsored savings plans in the U.S. and has influenced pension reform legislation both in the U.S. and abroad.
Samuelson Award Background
The award is named after Nobel Prize winner Paul A. Samuelson in honor of his achievements in the field of economics, as well as for his service as a CREF trustee from 1974-1985. The Samuelson Award is given annually in recognition of an outstanding researchpublication containing ideas that the public and private sectors can use tomaintain and improve America’s lifelong financial wellbeing. A $10,000 prize is awarded to the winner. Read More
Brigitte C. Madrian, Aetna Professor of Public Policy and Corporate Management
“This [paper] demonstrates that financial service providers should never assume that individuals are making fully rational decisions that consider the most important investment attribute," said Dr. Julie Agnew, Samuelson Award judge.