James Choi Wins TIAA-CREF Samuelson Award

James Choi, associate professor of finance at the Yale School of Management, and co-authors Brigitte C. Madrian and David I. Laibson of Harvard, have been awarded the 2011 TIAA-CREF Paul A. Samuelson Award for Outstanding Scholarly Writing on Lifelong Financial Security. The professors received the award for their paper "Why Does the Law of One Price Fail? An Experiment on Index Mutual Funds" (Review of Financial Studies, 2010).

The paper highlights the need for increased financial education and clearly demonstrates that educational materials can help individuals make better informed investment decisions.

The paper examines why individuals select high-fee index mutual funds over lower-cost options that can produce the same returns. The study asked individuals to allocate $10,000 across four S&P index funds with the objective of maximizing their investment returns. It found that individual investors consistently fail to recognize the impact of fund fees because they place greater emphasis on annualized returns since a fund’s inception. It also found that people with more financial education generally paid lower fees, and those that paid higher fees were less confident that they were making the best investment decision.

The Samuelson Award is named after Nobel Prize winner Paul A. Samuelson, in honor of his achievements in the field of economics, and for his service as a CREF trustee from 1974 to 1985. The award is given annually in recognition of an outstanding research publication containing ideas that the public and private sectors can use to maintain and improve America’s lifelong financial well being. A $10,000 prize is awarded to the winner.

The award will be presented on January 6, 2012, in Chicago during the Allied Social Science Associations Annual Convention. 

Read more about the paper.