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An experimental analysis of myopic loss aversion

Experiments in Financial Economics

ISBN: 978-1-78350-140-3, eISBN: 978-1-78350-141-0

Publication date: 16 January 2014

Abstract

Purpose

Previous studies showed mixed results as to the cause of myopic loss aversion (MLA). This paper reexamines the main driver of MLA, considering two factors from previous studies and an additional factor.

Design/methodology/approach

Experimentally investigate whether flexibility of investment, frequency of information feedback, or timing of decision cause MLA.

Findings

Timing of decision and flexibility of investment explain most differences in subject behavior. Frequency of information feedback makes only a marginal contribution.

Originality/value of the paper

The differences in subject behavior can be interpreted by a shift in their reference points depending on the difference in flexibility of investment, frequency of information feedback, or timing of decision.

Keywords

Acknowledgements

Acknowledgment

We are grateful to Takao Kusakawa, Yasuhiro Yonezawa, Kunio Nakashima, Shinichi Hirota, Ryoko Wada, Kenju Akai, Keiko Aoki, and anonymous referee for helpful comments and suggestions. We also appreciate valuable comments from participants at the Association of Behavioral Economics and Finance 2008 Tokyo Meeting, the Economic Science Association 2009 Tucson Meeting, the Economic Science Association 2010 Melbourne Meeting, and the Nippon Finance Association 2010 Meeting. We would like to thank Andrew Palaski for language support. We would like to acknowledge the financial support provided by the Japanese Ministry of Education, Culture, Sports, Science and Technology and NLI Research Institute, Tokyo Japan. Neither institution has any role in the study design, the collection, analysis and interpretation of data, the writing or in the decision to submit for publication of this chapter.

Citation

Kitamura, T. and Nakasato, M. (2014), "An experimental analysis of myopic loss aversion", Experiments in Financial Economics (Research in Experimental Economics, Vol. 16), Emerald Group Publishing Limited, Leeds, pp. 111-143. https://doi.org/10.1108/S0193-2306(2013)0000016006

Publisher

:

Emerald Group Publishing Limited

Copyright © 2013 Emerald Group Publishing Limited