The Effect of Myopia and Loss Aversion on Risk Taking: An Experimental Test
Abstract
Myopic loss aversion is the combination of a greater sensitivity to losses than to gains and a tendency to evaluate outcomes frequently. Two implications of myopic loss aversion are tested experimentally. 1. Investors who display myopic loss aversion will be more willing to accept risks if they evaluate their investments less often. 2. If all payoffs are increased enough to eliminate losses, investors will accept more risk. In a task in which investors learn from experience, both predictions are supported. The investors who got the most frequent feedback (and thus the most information) took the least risk and earned the least money.
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Laboratory studies have demonstrated that humans can show loss aversion for objects such as mugs, money, and simulated investments.
“Laboratory studies have since demonstrated that humans can show loss aversion for objects such as mugs (22), money (23), and simulated investments (24, 25).”
From Thinking like a trader selectively reduces individuals' loss aversion (2009) · cites this paper as [25]
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References 13 · Cited by 1,051
- Authors
- Thaler, R. H., Tversky, A., Kahneman, D., & Schwartz, A.
- Affiliations
- University of Chicago (US)
- Stanford University (US)
- Princeton University (US)
- University of California, Berkeley (US)
- Venue
- The Quarterly Journal of Economics
- Publisher
- Oxford University Press (OUP)
- Published
- 1997-05-01
- Volume
- 112
- Issue
- 2
- Pages
- 647-661
- ISSN
- 0033-5533 (ISSN-L)
- 1531-4650
- OpenAlex
- W2130100150
- Cited by
- 1,051
- References
- 13
- Citations by year
- 2026: 15 · 2025: 25 · 2024: 34 · 2023: 60 · 2022: 53 · 2021: 53 · 2020: 42 · 2019: 80 · 2018: 54 · 2017: 53 · 2016: 60 · 2015: 39 · 2014: 46 · 2013: 41 · 2012: 56
- FWCI
- 7.43
- Type
- journal article
- Language
- en
- Open access
- closed
- Locations
- The Quarterly Journal of Economics (publishedVersion)
- RePEc: Research Papers in Economics (submittedVersion)
- HighWire Press Open Archive (submittedVersion)
- Topics
- Social Sciences › Decision Sciences › General Decision Sciences › Decision-Making and Behavioral Economics
- Social Sciences › Safety Research › Experimental Behavioral Economics Studies
- Social Sciences › Economics, Econometrics and Finance › Finance › Financial Markets and Investment Strategies
- Keywords
- myopic loss aversion, risk-taking, loss aversion, feedback frequency, experiential learning, investor behavior, risk preferences, behavioral finance
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