Q1. Kelly Lieb and Don Carsner are discussing their investments in the Shrader Tire 401(k) defined contribution plan. Lieb and Carsner make the following statements in their conversation:

Lieb:             “Most of the money I have invested in our 401(k) plan is in Shrader Tire stock. Management would not include it as an option if it were not a good investment.”  

Carsner:       “I allocate most of my money to Shrader Tire Company stock as well. I don’t know anything about the other investment options, and I want to be loyal to the company.”

Which of the following factors behind holding company stock best reflects Lieb’s comment and Carsner’s comment respectively?

          Lieb's Comment                Carsner's Comment

A)   Endorsement effect           Familiarity bias

B)   Familiarity bias                   Familiarity bias

C)   Endorsement effect          Endorsement effect

答案和详解如下：

Q1. Kelly Lieb and Don Carsner are discussing their investments in the Shrader Tire 401(k) defined contribution plan. Lieb and Carsner make the following statements in their conversation:

Lieb:             “Most of the money I have invested in our 401(k) plan is in Shrader Tire stock. Management would not include it as an option if it were not a good investment.”  

Carsner:       “I allocate most of my money to Shrader Tire Company stock as well. I don’t know anything about the other investment options, and I want to be loyal to the company.”

Which of the following factors behind holding company stock best reflects Lieb’s comment and Carsner’s comment respectively?

          Lieb's Comment                Carsner's Comment

A)   Endorsement effect           Familiarity bias

B)   Familiarity bias                   Familiarity bias

C)   Endorsement effect          Endorsement effect

Correct answer is A)

Even without direct encouragement by the plan sponsor, employees tend to invest more in their company’s stock that would be warranted from a diversification standpoint. Lieb’s and Carsner’s comments are reflective of the two primary factors that contribute to DC plan participants holding company stock: the endorsement effect and familiarity bias. Lieb’s comment reflects the endorsement effect which refers to the misconception that by offering an investment as an alternative, the sponsor is implicitly endorsing it as a good investment. Carsner’s comment is reflective of familiarity bias, which refers to investors selecting stocks with which they are comfortable with or have a proximity to. If company stock is offered as an investment option in a defined contribution plan, participants may feel a sense of control or allegiance to the firm and hold more company stock than is sensible, which is an effect of familiarity.

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