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Through intellectual rigor and experiential learning, this full-time, two-year MBA program prepares leaders to make a difference in the world.

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MIT Evening MBA

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MIT Executive MBA

The 20-month program teaches the science of management to mid-career leaders who want to move from success to significance.

MIT Sloan Fellows MBA

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A joint program for mid-career professionals that integrates engineering and systems thinking. Earn your master’s degree in engineering and management.

Executive Education

Non-degree programs for senior executives and high-potential managers.

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A non-degree, customizable program for mid-career professionals.

What Drives Investors' Portfolio Choices? Separating Risk Preferences from Frictions

From Taha Choukhmane and Tim de Silva

We study the role of risk preferences and frictions in portfolio choice using variation in 401(k) default options. Patterns of active choice in response to different default funds imply that, absent participation frictions, 94% of investors prefer holding stocks, with an equity share of retirement wealth declining with age—patterns markedly different from observed allocations. We use this quasi-experiment to estimate a life-cycle model and find a relative risk aversion of 2.5, elasticity of intertemporal substitution (EIS) of 0.25, and $160 portfolio adjustment cost. The results suggest that low levels of stock market participation in retirement accounts are due to participation frictions rather than nonstandard preferences such as loss aversion.

Featured Publication

"What Drives Investors' Portfolio Choices? Separating Risk Preferences from Frictions."

Choukhmane, Taha, and Tim de Silva. Journal of Finance. Forthcoming.