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An experiment on risk taking and evaluation periods

Listed author(s):
  • Gneezy, U.

    (Tilburg University, School of Economics and Management)

  • Potters, J.J.M.

    (Tilburg University, School of Economics and Management)

Does the period over which individuals evaluate outcomes influence their investment in risky assets? Results from this study show that the more frequently returns are evaluated, the more risk averse investors will be. The results are in line with the behavioral hypothesis of "myopic loss aversion," which assumes that people are myopic in evaluating outcomes over time, and are more sensitive to losses than to gains. The results have relevance for the equity premium puzzle, and also for the marketing strategies of fund managers.

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Paper provided by Tilburg University, School of Economics and Management in its series Other publications TiSEM with number da6ba1bf-e15c-41b2-ae95-c5a54d9d23a9.

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Date of creation: 1997
Publication status: Published in Quarterly Journal of Economics (1997), v.112, nr.2, p.631-646
Handle: RePEc:tiu:tiutis:da6ba1bf-e15c-41b2-ae95-c5a54d9d23a9
Contact details of provider: Web page: https://www.tilburguniversity.edu/about/schools/economics-and-management/

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  1. Mehra, Rajnish & Prescott, Edward C., 1985. "The equity premium: A puzzle," Journal of Monetary Economics, Elsevier, vol. 15(2), pages 145-161, March.
  2. 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.
  3. Richard H. Thaler & Amos Tversky & Daniel Kahneman & Alan Schwartz, 1997. "The Effect of Myopia and Loss Aversion on Risk Taking: An Experimental Test," The Quarterly Journal of Economics, Oxford University Press, vol. 112(2), pages 647-661.
  4. Shlomo Benartzi & Richard H. Thaler, 1995. "Myopic Loss Aversion and the Equity Premium Puzzle," The Quarterly Journal of Economics, Oxford University Press, vol. 110(1), pages 73-92.
  5. 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.
  6. Richard H. Thaler, 2008. "Mental Accounting and Consumer Choice," Marketing Science, INFORMS, vol. 27(1), pages 15-25, 01-02.
  7. Kahneman, Daniel & Tversky, Amos, 1979. "Prospect Theory: An Analysis of Decision under Risk," Econometrica, Econometric Society, vol. 47(2), pages 263-291, March.
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