Assuming loss aversion, stochastic investment and labor income processes, and a path-dependent target fund, we show that the optimal investment strategy for defined contribution pension plan members is a target-driven 'threshold' strategy. With this strategy, the equity allocation is increased...

We estimate loss aversion using on an online survey of a representative sample of over 4,000 UK residents. The average aversion to a loss of £500 relative to a gain of the same amount is 2.41, but loss aversion varies significantly with characteristics such as gender, age, education, financial...

Assuming the loss aversion framework of Tversky and Kahneman (1992), stochastic investment and labour income processes, and a path-dependent fund target, we show that the optimal investment strategy for defined contribution pension plan members is a target-driven ‘threshold' strategy, whereby...