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Myopic loss aversion: Potential causes of replication failures

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  • Alexander Klos
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    Abstract

    This paper presents two studies on narrow bracketing and myopic loss aversion. The first study shows that the tendency to segregate multiple gambles is eliminated if subjects face a certainty equivalent or a probability equivalent task instead of a binary choice. The second study argues that the behavioral differences previously attributed entirely to myopic loss aversion are partly because long-term return properties are simply easier to grasp if the return information is already provided in the form of long-term returns rather than one-year returns. Both results may be related to recent failures to replicate myopic loss aversion. When the choice situation is structured in such a way that it draws respondents' attention to the final outcome distribution and/or if severe misestimations of long-term returns based on short-term return information are unlikely, behavioral differences consistent with myopic loss aversion are less likely to be observed.

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    Bibliographic Info

    Article provided by Society for Judgment and Decision Making in its journal Judgment and Decision Making.

    Volume (Year): 8 (2013)
    Issue (Month): 5 (September)
    Pages: 617-629

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    Handle: RePEc:jdm:journl:v:8:y:2013:i:5:p:617-629

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    Related research

    Keywords: multiple prospects; aggregation; segregation; myopic loss aversion; narrow bracketing.;

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    1. Benartzi, Shlomo & Thaler, Richard H, 1995. "Myopic Loss Aversion and the Equity Premium Puzzle," The Quarterly Journal of Economics, MIT Press, vol. 110(1), pages 73-92, February.
    2. Rabin, Matthew & Weizsäcker, Georg, 2007. "Narrow Bracketing and Dominated Choices," IZA Discussion Papers 3040, Institute for the Study of Labor (IZA).
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    17. Lusardi, Annamaria & Mitchell, Olivia S., 2011. "Financial literacy and retirement planning in the United States," Journal of Pension Economics and Finance, Cambridge University Press, vol. 10(04), pages 509-525, October.
    18. Heath, Chip & Tversky, Amos, 1991. " Preference and Belief: Ambiguity and Competence in Choice under Uncertainty," Journal of Risk and Uncertainty, Springer, vol. 4(1), pages 5-28, January.
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