Causes, consequences, and cures of myopic loss aversion - An experimental investigation

Abstract

We use an experiment to examine the causes, consequences and possible cures of myopic loss aversion (MLA) for investment behaviour under risk. We find that both investment horizons and feedback frequency contribute almost equally to the effects of MLA. Longer investment horizons and less frequent feedback lead to higher investments. However, when given the choice, subjects prefer on average shorter investment horizons and more frequent feedback. Exploiting the status quo bias by setting a long investment horizon or low feedback frequency as a default turns out to be a successful behavioural intervention to increase investment levels. © Journal compilation © 2009 by the Royal Economic Society (Registered Charity No. 231508).