Myopic Loss Aversion: Demystifying the Key Factors Influencing Decision Problem Framing

Hardin, A. and Looney, C. (2012) “Myopic Loss Aversion: Demystifying the Key Factors Influencing Decision Problem Framing” Organizational Behavior and Human Decision Processes, 117(2), 311-331

Posted: 6 Jul 2015

See all articles by Andrew Hardin

Andrew Hardin

University of Nevada, Las Vegas

Clayton A. Looney

University of Montana

Date Written: 2012

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.

Keywords: Decision problem framing, decision frequency, equity premium puzzle, evaluation frequency, feedback format, information horizon, mental accounting, myopic loss aversion, retirement planning

Suggested Citation

Hardin, Andrew and Looney, Clayton A., Myopic Loss Aversion: Demystifying the Key Factors Influencing Decision Problem Framing (2012). Hardin, A. and Looney, C. (2012) “Myopic Loss Aversion: Demystifying the Key Factors Influencing Decision Problem Framing” Organizational Behavior and Human Decision Processes, 117(2), 311-331, Available at SSRN: https://ssrn.com/abstract=2624729

Andrew Hardin (Contact Author)

University of Nevada, Las Vegas ( email )

4505 S. Maryland Parkway
Las Vegas, NV 89154
United States

Clayton A. Looney

University of Montana ( email )

Missoula, MT 59812
United States

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