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Risk Aversion or Myopia? Choices in Repeated Gambles and Retirement Investments

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Author Info

  • Shlomo Benartzi

    (The Anderson School, 110 Westwood Plaza, University of California at Los Angeles, Los Angeles, California 90095-1481)

  • Richard H. Thaler

    (Graduate School of Business, University of Chicago, 1101 E. 58th St., Chicago, Illinois 60637)

Abstract

We study how decision makers choose when faced with multiple plays of a gamble or investment. When evaluating multiple plays of a simple mixed gamble, a chance to win x or lose y, subjects show a sensitivity to the amount to lose on a single trial, holding the distribution of returns for the portfolio constant; that is, they display "myopic loss aversion." Many subjects who decline multiple plays of such a gamble will accept it when shown the resulting distribution. This analysis is applied to the problem of retirement investing. We show that workers invest more of their retirement savings in stocks if they are shown long-term (rather than one-year) rates of return.

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File URL: http://dx.doi.org/10.1287/mnsc.45.3.364
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Bibliographic Info

Article provided by INFORMS in its journal Management Science.

Volume (Year): 45 (1999)
Issue (Month): 3 (March)
Pages: 364-381

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Handle: RePEc:inm:ormnsc:v:45:y:1999:i:3:p:364-381

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Keywords: myopic loss aversion; retirement planning; asset allocation; risk aversion;

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