Some (Mis)facts about Myopic Loss Aversion
Inigo Iturbe-Ormaetxe (),
Giovanni Ponti () and
No 6/2015, Working Papers CESARE from Dipartimento di Economia e Finanza, LUISS Guido Carli
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.
Keywords: Expected Utility Theory; Myopic Loss Aversion; Evaluation Period (search for similar items in EconPapers)
JEL-codes: C91 D14 D81 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cbe, nep-exp and nep-upt
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Working Paper: Some (Mis)facts about Myopic Loss Aversion (2015)
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