Myopic Loss Aversion In Groups

Myopic loss aversion (MLA)—the tendency to "chase losses"—is a well-documented behavioral bias influencing investment decisions. However, whether groups amplify or mitigate this bias remains unclear. To investigate, we conducted an investment game where participants made decisions both individually and in groups under two conditions: "paper losses" (losses recorded prior to cash-out) and "realized losses" (Imas, 2016). Consistent with prior literature, we replicated the finding that individuals exhibit MLA. More importantly, our experimental evidence shows that group decision-making can intensify MLA rather than alleviate it. By analyzing group conversations with an LLMassisted approach, we identified key social mechanisms—rapid consensus formation, emotional contagion, and a shift toward risk-seeking behavior—that amplify these biases. These findings are significant because they reveal how group dynamics can undermine sound financial decision-making, emphasizing the need for financial literacy programs that address groupthink, shared biases, and emotional contagion and promote structured decision-making frameworks.