Myopic loss aversion

Myopic loss aversion2018-07-05T15:38:05+00:00

Myopic loss aversion occurs when investors take a view of their investments that is strongly focused on the short term, leading them to react too negatively to recent losses, which may be at the expense of long-term benefits (Thaler et al., 1997). This phenomenon is influenced by narrow framing, which is the result of investors considering specific investments (e.g. an individual stock or a trade) without taking into account the bigger picture (e.g. a portfolio as a whole or a sequence of trades over time) (Kahneman & Lovallo, 1993).

Thaler, R. H., Tversky, A., Kahneman, D., & Schwartz, A. (1997). The effect of myopia and loss aversion on risk taking: An experimental test. The Quarterly Journal of Economics, 112(2), 647-661.

Kahneman, D., & Lovallo, D. (1993). Timid choices and bold forecasts: A cognitive perspective on risk taking. Management Science, 39, 17-31.

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