NAIVE DIVERSIFICATION STRATEGIES 575
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Figure 16.1. Verbal savings questionnaire: Histograms of the allocation to fund A
and the resulting allocation to stocks. Notes: Three groups of individuals were
asked to allocate contributions between two funds, labeled Fund A and Fund B,
based on verbal description of the composition of the funds. The first group was
asked to allocate contributions between stocks (Fund A) and bonds (Fund B). The
second group was asked to allocate contributions between stocks (Fund A) and a
balanced fund that was half stocks and half bonds (Fund B). The third group was
asked to allocate contributions between a balanced fund (Fund A) and bonds (Fund
B). The histograms on the left provide the actual allocation to Fund A by group,
and the histograms on the right provide the resulting allocation to stocks.
of the contributions in the first (stocks and bonds) condition and 21 percent
in the second (stocks and balanced). In the third condition the allocations
are bimodal, with 28 percent selecting the 50-50 allocation and 33 percent
putting all of their money in the balanced fund. Note that the popularity of
the 1/nallocation is not very sensitive to the funds offered.