Handbook of Behavioral Finance
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Handbook of Behavioral Finance

Edited by Brian Bruce

The Handbook of Behavioral Finance is a comprehensive, topical and concise source of cutting-edge research on recent developments in behavioral finance.
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Chapter 2: Information Overload and Information Presentation in Financial Decision Making

Julie Agnew and Lisa Szykman


Julie Agnew and Lisa Szykman INTRODUCTION Information overload is a condition that exists because of the limited cognitive capacity humans have to process information. It is a topic that has been widely studied across a number of different disciplines such as management, marketing, accounting and management information systems (MIS). Eppler and Mengis (2004) provide a comprehensive interdisciplinary review of this literature. Information overload can have serious consequences in the context of financial decision making. When individuals experience information overload, it can impair their judgment by causing them to limit their information search and use simple heuristics instead. Given the well-documented use of heuristics in retirement plan investing, as well as the prevalence of biases such as the default bias and inertia, it is very possible that information overload is a contributing factor (see Agnew, forthcoming, for an overview). This chapter will highlight two recent experimental studies we have conducted that support this assertion. Our results suggest that finding ways to reduce information overload (through changes to plan design, financial education and information presentation) may help individuals make more informed financial decisions. This chapter is laid out as follows. We begin with a brief discussion of what information overload is and how it relates to financial decision making. We then discuss our first paper in this area, Agnew and Szykman (2005). In this paper, we examine how the presentation of investment information and the number of investment choices offered relate to information overload. We find that financial literacy plays an important...

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