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Some (Mis)facts about Myopic Loss Aversion

Author

Listed:
  • Inigo Iturbe-Ormaetxe
  • Giovanni Ponti
  • Josefa Tomás
Abstract
Gneezy and Potters (1997) run an experiment to test the empirical content of Myopic Loss Aversion (MLA). They find that the attractiveness of a risky asset depends upon the investors' time horizon: consistently with MLA, individuals are more willing to take risks when they evaluate their investments less frequently. This paper shows that these experimental findings can be easily accommodated by the most standard version of Expected Utility Theory, namely a CRRA specification. Additionally, we use four different datasets to estimate a CRRA model and two alternative MLA versions, together with various mixture specifications of the two competing models. Our econometric exercise finds little evidence of subjects' loss aversion, which provides empirical ground for our theoretical claim.

Suggested Citation

  • Inigo Iturbe-Ormaetxe & Giovanni Ponti & Josefa Tomás, 2015. "Some (Mis)facts about Myopic Loss Aversion," Working Papers CESARE 6/2015, Dipartimento di Economia e Finanza, LUISS Guido Carli.
    • Handle: RePEc:lui:cesare:1506
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    File URL: http://economiaefinanza.luiss.it/sites/ricerca.economiaefinanza.luiss.it/files/MLA.pdf
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Expected Utility Theory; Myopic Loss Aversion; Evaluation Period;
    All these keywords.

    JEL classification:

    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance

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