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Reevaluating evidence on myopic loss aversion: aggregate patterns versus individual choices

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Abstract

Investors who are more willing to accept risks when evaluating their investments less frequently are said to exhibit myopic loss aversion (MLA). Several recent experimental studies found that, on average, subjects bet significantly higher amounts on a risky lottery when they observe only a cumulative outcome of several realizations of the lottery (long evaluation period). In this article, we reexamine these empirical findings by analyzing individual rather than aggregate choice patterns. The behavior of the majority of subjects is inconsistent with the hypothesis of MLA: they bet an intermediate fraction of their initial endowment and these bets, on average, are not significantly different across two treatments with short and long evaluation period. We discuss several alternative explanations of this finding, including the Fechner model of random errors and the financial asset pricing model.

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Authors and Affiliations

  1. Institute for Empirical Research in Economics, University of Zurich, Winterthurerstrasse 30, 8006, Zurich, Switzerland

    Pavlo R. Blavatskyy

  2. Institute for Social and Economic Research and Policy, Center for Decision Sciences, Columbia University, 419 Schermerhorn Hall, New York, NY, 10027, USA

    Ganna Pogrebna

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  1. Pavlo R. Blavatskyy
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  2. Ganna Pogrebna
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Correspondence to Ganna Pogrebna.

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Blavatskyy, P.R., Pogrebna, G. Reevaluating evidence on myopic loss aversion: aggregate patterns versus individual choices. Theory Decis 68, 159–171 (2010). https://doi.org/10.1007/s11238-009-9143-5

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  • DOI: https://doi.org/10.1007/s11238-009-9143-5

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