Behavioral biases in pension fund trustees' decision making

Purpose Behavioral finance research has almost exclusively investigated the decision making of lay individuals, mostly ignoring more sophisticated institutional investors. The purpose of this paper is to better understand the relatively unexplored field of investment decisions made by pension fund trustees, an important subset of institutional investors, and identify future avenues of further exploration. Design/methodology/approach This paper starts by setting out the landscape in which pension fund trustees operate and make their decisions, followed by a literature review of the extant behavioral finance research applicable to similar situations. Findings Despite receiving training and accumulating experience in financial markets, these are limited and sparse; therefore, pension fund trustees are unlikely to be immune from behavioral biases. Trustees make decisions in groups, are heavily reliant on advice and make decisions on behalf of others. Research in those areas has uncovered many inefficiencies. It is still unknown how this specific context can affect the psychological effects on their decisions. Originality/value As far as the authors are aware, no behavioral research has empirically tested pension fund trustees' decisions to investigate how the combination of group decisions, advice and surrogacy influence their decisions and, ultimately, the sustainability of our pensions.