Even without direct encouragement by the plan sponsor, employees tend to invest more in their company’s stock that would be warranted from a diversification standpoint. Lieb’s and Carsner’s comments are reflective of the two primary factors that contribute to DC plan participants holding company stock: framing and familiarity bias. Lieb’s comment reflects framing which refers to the misconception that by matching the employee's contribution with company stock the sponsor is implicitly endorsing it as a good investment. Carsner’s comment is reflective of familiarity bias, which refers to investors selecting stocks with which they are comfortable with or have a proximity to. If company stock is offered as an investment option in a defined contribution plan, participants may feel a sense of control or allegiance to the firm and hold more company stock than is sensible, which is an effect of familiarity. |
