Do Changes in Reporting Frequency Really Influence Investors’ Risk Taking Behavior? Myopic Loss Aversion Revisited

29 Pages Posted: 20 Mar 2011 Last revised: 18 Jun 2014

See all articles by Stefan Zeisberger

Stefan Zeisberger

Radboud University, Institute for Management Research; University of Zurich, Department of Banking and Finance

Thomas Langer

University of Muenster - Finance Center

Martin Weber

University of Mannheim - Department of Banking and Finance

Date Written: June 11, 2014

Abstract

According to the behavioral concept of myopic loss aversion (MLA), investors are more willing to take risks if they are less frequently informed about their portfolio performance. This prediction of MLA has been confirmed in various experimental studies and the conclusion has been drawn that banks could in fact influence investors’ risk taking behavior by adjusting the frequency with which they give feedback. However, none of the existing studies has really provided an explicit test of this dynamic prediction. Instead it is simply assumed that the results from between-subject experiments translate to a within-subject scenario in which feedback frequency changes over time. To examine the scope of the phenomenon and to assess its practical relevance, we present the first experimental study of MLA that directly addresses the dynamic prediction and manipulates feedback frequency (and investment flexibility) within-subject. Our analysis reveals that the impact of such dynamic changes is not as straightforward as commonly assumed. Stickiness and a general introspection component superimpose the standard MLA effect and generate unexpected dynamic patterns of risk taking behavior.

Keywords: myopic loss aversion, Prospect Theory, repeated investing, experimental economics

JEL Classification: D81, G11

Suggested Citation

Zeisberger, Stefan and Langer, Thomas and Weber, Martin, Do Changes in Reporting Frequency Really Influence Investors’ Risk Taking Behavior? Myopic Loss Aversion Revisited (June 11, 2014). Available at SSRN: https://ssrn.com/abstract=1786360 or http://dx.doi.org/10.2139/ssrn.1786360

Stefan Zeisberger (Contact Author)

Radboud University, Institute for Management Research ( email )

Nijmegen
Netherlands

University of Zurich, Department of Banking and Finance ( email )

Zürich
Switzerland

Thomas Langer

University of Muenster - Finance Center ( email )

Universitatsstr. 14-16
Muenster, 48143
Germany
+49 251 83 22033 (Phone)

Martin Weber

University of Mannheim - Department of Banking and Finance ( email )

D-68131 Mannheim
Germany
+49 621 181 1532 (Phone)
+49 621 181 1534 (Fax)

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