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

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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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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Keywords

  • Myopic loss aversion
  • Evaluation period
  • Prospect theory
  • Random error

JEL Classification

  • D81
  • C91
  • D14