“Rainbows don’t cast reflections. They can’t because they’re not real objects. As we all know from horror movies, vampires don’t have a reflection in a mirror. Neither do rainbows.” Bob Berman of Astronomy suggested this back in October 2009 writing that a rainbow “is a specific set of reflections and refractions within water droplets that essentially appear on the surface of an invisible cone whose radius is 42 degrees, whose orientation is the antisolar point, and whose apex is your eye, and your eye alone” and because of that we don’t see the same thing.

So it goes with investing. How we react and why we do so is being studied with increased intensity in part because what we think we will do, what we say we will do and what we actually end up doing, are wholly different. Over the next couple of posts, we will look at some of the more interesting studies on the effects of our behaviors when it comes to investing and how they will ultimately effect your plans to retire when you want to and with the money you think you will need.

Inside your 401(k)

You have choices inside this tax deferred plan that to some seem daunting; to others a banquet of opportunities. When we are first faced with the choices many of our plans have, we tend to fall back on some latent attractions. Most 401(k) plans are populated with a variety of low-cost index funds, some actively managed funds, balanced mutual funds (which split the investments among stocks – 60% and bonds – 40%) and the newest members of the group, the target date fund (identified by the year you will retire – or hope to).

According to a study conducted by Stanford, the chances of what we choose depends on which sex we are. Men tend to be less choosier that women no matter how big the group is. Women tend to say they look for certain characteristics but when given many choices, they tend to abandon those preferences. This study wasn’t exactly focused on the different way women and men in invest or how they approach their finances. But retirement is a persuasive engagement of time and effort. And we think we know who we are when it comes to making the right choices for our retirement.

This study perked the ears and eyes of marketers who look for these subtle nuances of behavior and try to gear their products towards their customer’s needs. The study found, using speed dating as the test, “Women get pickier about whom they date the more options they have. Moreover, although women say that they rate intelligence over attractiveness in their search for a mate, when they try “speed dating” physical attractiveness leads their list—outpacing intelligence, sincerity, and compatibility—to the same degree as it does for men.”  If women say they want a certain thing from their investment portfolio as men, why do they often choose differently when confronted with the same options.

Our Baseline

We have, according to the study, a baseline of what we find attractive. Yet, if we suggest that this baseline is our guide, why do deviate from it when numerous choices, including the ones we ascribe to the most, are given? Alice LaPlante writes: ”Another interesting finding was that women tended to be choosier the more options they had. In the smaller group (10 men and 10 women) both men and women said they would like to see any given person again approximately half the time. In the large dating group, men kept to the same proportion of yeses (10 out of 20 times). However, women only said yes 6.5 out of 20 times.”

Perhaps we don’t know what the right choice is. Perhaps when it comes to retirement planning using our 401(k) we have the right intentions but when faced with the daunting task of putting our prerequisites to work for us, we flinch and go against what we find attractive. In a 401(k), pick-and-choose situation, we know that retirement at 65 is the goal. yet some of us will opt for a much more conservative investment thinking it is safer. And while we are attracted to safety, the ultimate result of such a choice might mean that we need to forego the goal because we simply haven’t taken the right amount of risk.

We may have no influence over the external factors at play. We know, for instance that we should contribute far more than we are. But when faced with the choice of living a little bit smaller and investing a little bit more – the preference is always invest a little more – we don’t. We’ll lament about the fact later, and according to Itamar Simonson, the Sebastian S. Kresge Professor of Marketing at the Stanford Graduate School of Business, who studied dating preferences along with co-researchers Raymond Fisman and Sheena Iyengar of Columbia University and Emir Kamenica of Harvard University deny our actions.

His study, using speed dating as the test, found “there was a much higher correlation between what men said they wanted and what they actually did. “Men,” his research uncovered,  ”say that appearance is important, and it is. Women do not say that appearance is particularly important to them, but it is, particularly in the context of speed dating.”

Are you speed dating your 401(k)?

Next up: Investing in your 401(k): Are you in charge or is it something else?