Where does myopic loss aversion collide?

Myopic loss aversion is the tendency to turn down attractive long-run gambles when outcomes are checked too often, because frequent review keeps exposing the chooser to the pain of short-run losses. Benartzi and Thaler's 1995 Myopic Loss Aversion and the Equity Premium Puzzle combined the extra weight people place on losses with the frequency at which they review a portfolio, and argued that this pairing explains why stocks have historically paid so much more than bonds: investors who look often demand a large premium to bear the repeated sight of losses. The referent here is the full compound mechanism, evaluation frequency acting together with loss aversion, and it is easy to mistake for just one of its parts, either plain loss aversion or plain mental accounting on its own.[1]

Unit

One compound tendency: loss aversion scaled by how often outcomes are reviewed

Recovery means

Not applicable

Measured by

Inferred from the size of the equity premium and from choices that shift with evaluation frequency

The experimental version isolates the two ingredients by varying how often people see outcomes while holding the underlying gamble fixed. Thaler, Tversky, Kahneman, and Schwartz's 1997 The Effect of Myopia and Loss Aversion on Risk Taking: An Experimental Test gave participants feedback either frequently or infrequently, and found that those shown results less often bet more on the favourable gamble, exactly as myopic loss aversion predicts. This referent is the controlled demonstration rather than the market puzzle or either raw ingredient: it shows that changing evaluation frequency alone shifts risk taking, confirming that the myopia and the loss aversion have to act together.[2]

Unit

A choice under a set feedback frequency, held against a fixed gamble

Recovery means

Not applicable

Measured by

Amount allocated to a risky gamble across frequent versus infrequent feedback conditions