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Myopic Loss Aversion and House-Money Effect Overseas: an experimental approach

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Author Info
José L. B. Fernandes
Juan Ignacio Peña
Benjamin M. Tabak

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Abstract

Recent literature has found two behavioral effects - house-money and myopic loss aversion (MLA) - in several experimental designs. We show that although we can find a house-money effect using survey methods this evidence disappears when we study investment decision within a multi-period investment experiment. Loss aversion is found to govern the risk-taking behavior of subjects in dynamic settings, overcoming the house-money effect. These results are robust to experiments conducted in two different countries, Spain and Brazil.

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File URL: http://www.bcb.gov.br/pec/wps/ingl/wps115.pdf
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Paper provided by Central Bank of Brazil, Research Department in its series Working Papers Series with number 115.

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Date of creation: Sep 2006
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Handle: RePEc:bcb:wpaper:115

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Web page: http://www.bcb.gov.br/?english

For technical questions regarding this item, or to correct its listing, contact: (Benjamin Tabak).

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  3. Tversky, Amos & Kahneman, Daniel, 1992. " Advances in Prospect Theory: Cumulative Representation of Uncertainty," Journal of Risk and Uncertainty, Springer, vol. 5(4), pages 297-323, October.
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  6. Michael S. Haigh & John A. List, 2005. "Do Professional Traders Exhibit Myopic Loss Aversion? An Experimental Analysis," Journal of Finance, American Finance Association, vol. 60(1), pages 523-534, 02. [Downloadable!] (restricted)
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  7. Lucy F. Ackert & Narat Charupat & Bryan K. Church & James Tompkins & Richard Deaves, 2003. "An experimental examination of the house money effect in a multi-period setting," Working Paper 2003-13, Federal Reserve Bank of Atlanta.
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  8. Mehra, Rajnish & Prescott, Edward C., 1985. "The equity premium: A puzzle," Journal of Monetary Economics, Elsevier, vol. 15(2), pages 145-161, March. [Downloadable!] (restricted)
  9. Weber, Martin & Camerer, Colin F., 1998. "The disposition effect in securities trading: an experimental analysis," Journal of Economic Behavior & Organization, Elsevier, vol. 33(2), pages 167-184, January. [Downloadable!] (restricted)
  10. 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. [Downloadable!] (restricted)
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  11. Brian M. Lucey & Michael Dowling, 2005. "The Role of Feelings in Investor Decision-Making," Journal of Economic Surveys, Blackwell Publishing, vol. 19(2), pages 211-237, 04. [Downloadable!] (restricted)
  12. Langer, Thomas & Weber, Martin, 2005. "Myopic prospect theory vs. myopic loss aversion: how general is the phenomenon?," Journal of Economic Behavior & Organization, Elsevier, vol. 56(1), pages 25-38, January. [Downloadable!] (restricted)
  13. Jeremy Clark, 2002. "House Money Effects in Public Good Experiments," Experimental Economics, Springer, vol. 5(3), pages 223-231, December. [Downloadable!] (restricted)
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