The Consequences of Narrow Framing for Risk-Taking: A Stress Test of Myopic Loss Aversion

Narrow bracketing in combination with loss aversion has been shown to reduce individual risk-taking. This is known as myopic loss aversion (MLA) and has been corroborated by many studies. Recent evidence has contested this notion indicating that MLA's applicability is confined to highly artificial settings. Given the impact of these findings, we reevaluated the evidence on MLA with substantially higher statistical power than in almost all previous studies. We systematically modified the seminal study design by Gneezy and Potters (1997) to include five key adjustments. These involved down-scaled returns, return compounding, and extended investment horizons. Our results -- which are highly robust to analytical heterogeneity -- consistently document the presence of MLA across all experimental conditions.

Keywords: myopic loss aversion, narrow framing, risk-taking, meta science, replication

JEL Classification: D14, D81, G02, G11

Suggested Citation: Suggested Citation

Schwaiger, Rene and Strucks, Markus and Zeisberger, Stefan, The Consequences of Narrow Framing for Risk-Taking: A Stress Test of Myopic Loss Aversion (February 14, 2024). Management Science (forthcoming), Available at SSRN: https://ssrn.com/abstract=4726856 or http://dx.doi.org/10.2139/ssrn.4726856