Myopic loss aversion: Demystifying the key factors influencing decision problem framing

Andrew M. Hardin, Clayton Arlen Looney

Research output: Contribution to journalArticlepeer-review

18 Scopus citations

Abstract

Advancement of myopic loss aversion theory has been hamstrung by conflicting results, methodological inconsistencies, and a piecemeal approach toward understanding the key factors influencing decision problem framing. A series of controlled experiments provides a more holistic view of the variables promoting myopia. Extending the information horizon promotes broad framing, which propels risk. Evaluation frequency and decision frequency interact regardless of information horizon, supporting the notion that restricting either mechanism alleviates myopia. When conducting evaluations infrequently, neither segregating nor aggregating retrospective returns significantly alters risk preferences. Moreover, students and real retirement plan participants exhibit comparable appetites for risk, implying that both groups frame decision problems similarly. Explanations for these findings and avenues for future research are discussed.

Original languageEnglish
Pages (from-to)311-331
Number of pages21
JournalOrganizational Behavior and Human Decision Processes
Volume117
Issue number2
DOIs
StatePublished - Mar 2012

Keywords

  • Decision frequency
  • Decision problem framing
  • Equity premium puzzle
  • Evaluation frequency
  • Feedback format
  • Information horizon
  • Mental accounting
  • Myopic loss aversion
  • Retirement planning

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