Regulations designed to help poor investors by highlighting fees often backfire and make them choose worse funds.
Increasing the visual prominence of investment fees leads unsophisticated investors to ignore the fees entirely and chase risky performance. Sophisticated investors use the extra information to save money, but the same nudge confuses those it was meant to protect. This visual salience creates a performance chase where the focus on one number blinds the investor to the overall value. It challenges the assumption that more transparent information always leads to better consumer choices. Many regulatory policies may be unintentionally widening the wealth gap by benefiting only the most financially literate.
Visual Saliency and Investment Decisions
SSRN · 5149911
Can policymakers use visual salience to shape choices? We study this question in the context of mutual fund investment decisions, where investors often chase past performance and underweight fees. In Study 1 (N ≈ 2,000), eye tracking shows that, in a simplified environment, increasing fee salience shifts visual attention to fees; the same manipulation also shifts allocations toward lower-fee funds despite their worse past performance. In Study 2 (N ≈ 2,000), we test the boundary conditions of th