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Does Binding of Feedback Influence Myopic Loss Aversion? An Experimental Analysis

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  • Langer, Thomas
  • Weber, Martin
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    Abstract

    The feedback frequency and the length of commitment are two important features of investment alternatives in intertemporal decision-making. So far, empirical research has shown that a lower feedback frequency combined with a longer binding period decreases myopia and thereby increases the willingness to invest into a risky asset. Almost nothing is known, however, about the isolated effect of each variable and about a possible interaction of these variables. In an experimental study, we disentangle the intertwined manipulation of feedback frequency and binding period, commonly used in previous research, to analyse how both variables alone contribute to the change in myopia. We find a strong effect depending on the length of commitment, a much less pronounced effect of feedback and a strong interaction between both variables. The results have important implications for real world intertemporal decision-making.

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    Bibliographic Info

    Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 4084.

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    Date of creation: Oct 2003
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    Handle: RePEc:cpr:ceprdp:4084

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    Related research

    Keywords: evaluation period; feedback frequency; intertemporal decision-making; length of commitment; myopic loss aversion;

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    References

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    1. Michael Haigh & John List, 2005. "Do professional traders exhibit myopic loss aversion? An experimental analysis," Artefactual Field Experiments 00052, The Field Experiments Website.
    2. Uri Gneezy & Arie Kapteyn & Jan Potters, 2002. "Evaluation Periods and Assett Prices in a Market Experiment," Working Papers 02-02, RAND Corporation Publications Department.
    3. Gneezy, U. & Potters, J.J.M., 1997. "An experiment on risk taking and evaluation periods," Open Access publications from Tilburg University urn:nbn:nl:ui:12-73908, Tilburg University.
    4. Shlomo Benartzi & Richard H. Thaler, 1993. "Myopic Loss Aversion and the Equity Premium Puzzle," NBER Working Papers 4369, National Bureau of Economic Research, Inc.
    5. Camerer, Colin & Loewenstein, George & Weber, Martin, 1989. "The Curse of Knowledge in Economic Settings: An Experimental Analysis," Journal of Political Economy, University of Chicago Press, vol. 97(5), pages 1232-54, October.
    6. 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.
    7. 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.
    8. Daniel Kahneman & Dan Lovallo, 1993. "Timid Choices and Bold Forecasts: A Cognitive Perspective on Risk Taking," Management Science, INFORMS, vol. 39(1), pages 17-31, January.
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    Cited by:
    1. Sutter, Matthias, 2007. "Are teams prone to myopic loss aversion? An experimental study on individual versus team investment behavior," Economics Letters, Elsevier, vol. 97(2), pages 128-132, November.

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