Dominated Pension Investments: The Role of Search Frictions and Unawareness

We conduct a large-scale field experiment in the Swedish pension system to examine to what extent information and search frictions explain dominated high-fee index fund choices. Three findings stand out: (i) Letters that increase awareness of a dominated choice and reduce search costs of finding the dominating alternative improve savers’ investment choices. (ii) While the average effects are positive, a majority of investors are unresponsive to information that essentially removes search costs. The inertia holds across expected gains, rejecting models with fixed adjustment costs. (iii) Lack of awareness and search costs account for at most 45 percent of dominated choices. (JEL C93, D83, G23, G51, G53, J32)