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Is it myopia or loss aversion? A study on investment game experiments

Inigo Iturbe-Ormaetxe (), Giovanni Ponti and Josefa Tomás

Economics Letters, 2019, vol. 180, issue C, 36-40

Abstract: Gneezy and Potters (1997) designed an investment game experiment and found that, consistent with Myopic Loss Aversion (MLA), individuals are more willing to take risks when they evaluate the results of their investments less frequently. We formally prove that these findings can be accommodated by a standard CRRA functional, once we assume narrow bracketing, a specific form of myopia by which subjects take each decision in isolation and neglect asset integration. We build a compound dataset containing the evidence of Gneezy and Potters (1997) and other replications and structurally estimate both “CRRA plus narrow bracketing” and MLA, together with a mixture model in which we estimate the probability with which each observation is generated by either model. Our results suggest that the CRRA model can also accommodate this experimental evidence, providing empirical support to our theoretical findings.

Keywords: Myopic loss aversion; CRRA; Narrow bracketing (search for similar items in EconPapers)
JEL-codes: C91 D81 D91 (search for similar items in EconPapers)
Date: 2019
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