Based on research by Ajay Kalra, Xiao Liu and Wei Zhang

• When picking a retirement fund, investors gravitate toward funds ending in the number zero over those ending in the number five.
• Because of this tendency, some investors expose themselves to financial risk and loss of wealth.
• One-on-one financial planning meetings can soften this “zero bias.”

When the Dow Jones Industrial Average hit 18,000 a few years back, the nicely rounded number dominated the news. When teens take the SAT, those who just miss scoring a round number are more likely to seek a do-over. And, research shows, major league baseball players are four times more likely to end their seasons with a .300 batting average than a .299. 

There’s something irresistible about figures ending in zero. But does that extend to our decision-making? Does our instinctive love for round numbers affect our financial plans?

The answer is yes, says Rice Business professor Ajay Kalra. Along with Xiao Liu of NYU Stern and Wei Zhang of Iowa State University, Kalra looked at data from thousands of investors in Target Retirement Funds (TRFs), which generally assume retirement at age 65 and ask employees to pick a fund with a year ending either in zero or five (e.g., 2040, 2045) that is nearest to their planned retirement date. 

Investors whose birth year doesn’t already end in zero or five must round up or round down to choose their TRF.

The zeros clearly win investors’ hearts. Succumbing to what the researchers call “zero bias,” investors consistently choose to sink their retirement dollars into funds that end in zero, not five. For many of the investors Kalra and his team looked at, especially older people, men and those with higher incomes, this meant choosing a retirement age of 60 or 70 rather than the standard 65. 

The choice was often costly. Many investors who rounded up or down to find a fund year ending in zero exposed themselves to real financial risk.

That’s because TRFs are graded portfolios — meaning they start out stock-heavy, move to a mix of stocks and bonds and finally emphasize bonds. Investors who rounded down for a too-young retirement target gave themselves less time to benefit from a stock-dominant portfolio. Investors who rounded up for a too-old retirement target ending in zero contributed less money to their retirement because they assumed they had more time to invest. Investors who rounded down did worse than those who rounded up.  

Who is most susceptible to losing hard-earned retirement dollars this way? The researchers looked at people born from the 1950s through the 1980s. Of these investors, those born in years ending between three and seven selected the appropriate fund. The zero bias was prevalent in those born in years ending in eight or nine, who tended to project their retirement age as 60, and those born in years that ended in zero, one or two, who favored retiring at 70. 

Overall, the researchers discovered, 34 percent of people born in years ending in eight or nine picked retirement funds that targeted too-early retirement — and ended up financially worse off. Meanwhile, 29 percent of investors born in years ending in the numbers zero, one or two picked later TRFs. With the exception of those who were risk averse, these investors ended up better off than those who chose too-early TRFs. Overall, however, investors who picked funds with mismatched retirement dates (that is, inconsistent with retirement at 65), saw more losses than gains.

The infatuation with zero held up even when the researchers replicated their study in an experimental setting. So they tried something different: They presented participants with math problems to coax a “calculative mindset.” It worked. Rather than gravitating to zeros, these investors chose retirement funds that matched their ages. Straight talk in the form of a 30-minute one-on-one financial planning session helped too. At least some investors who got this counseling made better choices. 

Rounding up or down to zero can be a nice mental shortcut when stakes are low and time is short. There are good reasons, for example, to go for the zero in calculating sales tax when you’re buying a book, or tallying how many party guests want cake. 

But when it comes to life savings, instinct-based math can be trouble. Financial firms should be aware of this and discourage preference for the shiny number zero. Advisors should nudge clients toward funds that will truly enhance earnings. Most important, however, investors themselves need to keep their heads, think of the future and resist the allure of round numbers.

Ajay Kalra is a professor of marketing at Jones Graduate School of Business at Rice University.

To learn more, please see: Kalra, A., Liu, X. & Zhang, W. (2020). The zero bias in target retirement fund choice. Journal of Consumer Research (forthcoming).  

If you’re looking for an unconventional approach to doing business, select a CEO with an uncommon name, according to new research co-authored by an expert at Rice University’s Jones Graduate School of Business.

“Using 19 years of data on 1,172 public firms, we show that firms’ distinctive strategies are systematically linked to their CEOs’ uncommon names,” wrote co-authors Yan Anthea Zhang, the Fayez Sarofim Vanguard Professor of Strategy at the Jones School, and Yungu Kang and David H. Zhu of Arizona State University’s W.P. Carey School of Business.

Past studies have examined how organizational outcomes are associated with leadership personalities, values, experiences and demographic characteristics, but not CEO’s names — “one of the most fundamental attributes,” the authors argue. A person’s name influences their behavior, cognition and sense of self, according to the paper.

Studies suggest that individuals with uncommon names tend to have a self-conception of being different from their peers.

“Although many people may not have the confidence to exhibit how unique they believe themselves to be, CEOs do — they are generally confident individuals,” they wrote.

CEOs who have uncommon names are motivated to differentiate themselves from other CEOs, they argue, which influences strategic distinctiveness, or the degree that a business’ strategy differs from industry peers.

“This is consistent with findings from psychological research that successful professionals who have uncommon names tend to view themselves as more special, unique, interesting and creative,” they wrote.

Developing and implementing unique business strategies is “critical for firms to obtain competitive advantage and achieve superior performance,” according to the authors. They argue that CEOs with uncommon names tend to adopt strategies that deviate from the industry norm, leading to distinctive strategies.

“Our findings can help all stakeholders to better understand and predict a CEO’s strategic decisions, they wrote. “Because CEOs with uncommon names tend to pursue distinctive strategies, boards that seek to enhance the distinctiveness of their firms’ strategies may want to hire CEOs with uncommon names.”

“Other top executives, middle-level managers and employees can also expect a higher likelihood of implementing distinctive strategies when their CEOs have more uncommon names,” the authors continued. “Competitors can expect a firm to engage in unusual competitive moves when the CEO has an uncommon name.”

The U.S. Postal Service was not created to be a traditional profit-making business, according to an accounting expert at Rice University’s Jones Graduate School of Business.

K. Ramesh, the Herbert S. Autrey Professor of Accounting at the Jones School, published a FAQ on his LinkedIn as a “pragmatic way to understand the forces at work and how they must be reshaped if reforms are desired.”

Profitability was not meant to be the sole criterion to evaluate the performance of a national postal service with important social objectives.

“Of course, the Congress clearly wanted an efficient postal service that can operate within the statutory mandate. For instance, the USPS has also used measures such as total factor productivity, on-time delivery and customer satisfaction to monitor its performance, ”he wrote. 

However, the Postal Accountability and Enhancement Act (PAEA) that took effect in 2006 amended the 1971 Postal Reorganization Act (PRA) — which established the USPS — and created an additional obligation for the Postal Service of roughly $5.6 billion per year for 10 years, Ramesh wrote.

“More importantly, the feasibility of making such payments would have required drastic changes to the strategy and operations of the Postal Service, which may not have been even possible given its statutory mandate,” he wrote. “Not surprisingly … the Postal Service has defaulted on $33.9 billion in PAEA-specified funding requirements.”

The legislative mandates of the PAEA and the PRA do not clearly state if the Postal Service “could (or should) ever function similar to a business entity and make the necessary transformational changes to become ‘profitable,’” Ramesh wrote.

Maintaining “operational effectiveness” throughout the country is an important social asset, Ramesh argues.

“If Congress is worried about postal delay that impacts the delivery of essential medicine and other time-sensitive items to all communities, then its immediate focus should be not on structural issues such as long-term financial stability, but on the near-term operational effectiveness in meeting the service needs of a broad cross section of communities in the U.S.,” Ramesh wrote.

By focusing on keeping the Postal Service running instead of reallocating funds and resources, Congress could ensure mail delivery in an “uninterrupted and timely fashion” through the end of year 2020, Ramesh explains.

As Hurricane Laura nears the Texas coast, Rice University has a number of experts that can discuss a wide variety of storm-related topics.

Rice’s hurricane experts, by topic area, include:

Hurricane and flooding risks and impact

Phil Bedient, Rice’s Herman Brown Professor of Engineering and director of the Severe Storm Prediction, Education and Evacuation from Disasters (SSPEED) Center, can discuss flooding issues that arise from tropical depressions, hurricanes and other severe storms. Bedient has studied Hurricane Harvey’s unprecedented flooding and massive 2015 and 2016 floods in Houston and Louisiana. He can speak to the effects of urban development practices on these and other floods.

Jim Blackburn is co-director of Rice’s SSPEED Center, director of Rice’s undergraduate minor in energy and water sustainability and a professor in the practice of environmental law in Rice’s Department of Civil and Environmental Engineering. He can speak about how widespread property development has impacted storm and flood risks. Blackburn can also address the environmental and economic sustainability of regional hurricane protection proposals, including structural options such as dikes, levees and gates in and around Galveston Bay and nonstructural alternatives that aim to use coastal wetlands and prairies as natural storm barriers.

Energy industry 

Ken Medlock, director of the Center for Energy Studies at Rice’s Baker Institute for Public Policy, can address the potential impact on gasoline prices and exports of oil, refined products and liquefied natural gas (LNG) when infrastructure is affected for an extended time.

Rachel Meidl, fellow in energy and environment at the Baker Institute, can discuss how to ensure energy infrastructure resilience when dealing with catastrophic weather events like hurricanes.

Mark Finley, fellow in energy and global oil at the Baker Institute, can discuss the intersections of energy, economics and public policy during times of severe weather.

Houston, Texas and urban issues

Stephen Klineberg, founding director of Rice’s Kinder Institute for Urban Research and professor emeritus of sociology, can discuss Kinder Houston Area Survey data on the persistence of concerns about flooding among area residents, even 2 1/2 years after Harvey.

Katherine Ensor, the Noah Harding Professor of Statistics in Rice’s Brown School of Engineering, can discuss the Texas Flood Registry (formerly known as the Hurricane Harvey Registry), which is committed to better understanding the health and housing effects of major natural disasters, and the recently launched COVID-19 Registry, which provides real-time information on the spread of COVID-19 in the region, who is being affected and how.

Corporate response and leadership

Tom Kolditz, director of Rice’s Doerr Institute for New Leaders, can discuss crisis leadership strategies with examples taken from hurricanes Katrina and Sandy; he uses the two events in his presentations, and they are included in his book “In Extremis Leadership: Leading as If Your Life Depended on It.” The Doerr Institute is the most comprehensive leader-development initiative at any top 20 university.

Terry Hemeyer, adjunct professor in Rice’s Jones Graduate School of Business, can discuss crisis management and communication challenges that communities, the public, corporations and government entities face in times of disaster. Pierpont, a communications firm where Hemeyer serves as executive counsel, featured him in a post titled “Crisis Management: Controlling the Chaos.”

Politics

Mark Jones, professor of political science and fellow in political science at Rice’s Baker Institute for Public Policy, can discuss government reactions to storms and the politics in play as well as public opinion on policies related to hurricanes and flooding.

Bob Stein, the Lena Gohlman Fox Professor of Political Science, can talk about local government reaction to storms and the politics involved in decision-making.

Psychology

Danielle King, an assistant professor of industrial and organizational psychology in Rice’s School of Social Sciences, is an expert in the study of employee and organizational resilience. She can discuss resilience in the face of catastrophic events such as hurricanes. A New Orleans native who lost but subsequently helped to adapt her family business after Hurricane Katrina, she seeks ways to create resilience in individuals and groups at work.

To schedule an interview with one of the experts or for more information, contact Jeff Falk, director of national media relations at Rice, at jfalk@rice.edu or 713-348-6775.

You Belong Here at Rice Business: Houston's Professional MBA Program

Rice University's Jones Graduate School of Business is located in the center of Houston, TX. Being in the heart of the nation's energy hub, sharing a home with the Johnson Space Center and neighboring the largest medical center in the world, Rice University is perfect for professionals looking to accelerate their career in their own backyard. See yourself at Rice Business, because you belong here.