Is it myopia or loss aversion? A study on investment game experiments

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Title: Is it myopia or loss aversion? A study on investment game experiments
Authors: Iturbe-Ormaetxe, Iñigo | Ponti, Giovanni | Tomás Lucas, Josefa
Research Group/s: Economía Laboral y Econometría (ELYE) | Microeconomía Aplicada (GIMA) | Análisis Económico
Center, Department or Service: Universidad de Alicante. Departamento de Fundamentos del Análisis Económico
Keywords: Myopic loss aversion | CRRA | Narrow bracketing
Knowledge Area: Fundamentos del Análisis Económico
Issue Date: Jul-2019
Publisher: Elsevier
Citation: Economics Letters. 2019, 180: 36-40. doi:10.1016/j.econlet.2019.04.006
Abstract: Gneezy and Potters (1997) designed an investment game experiment and found that, consistent with Myopic Loss Aversion (MLA), individuals are more willing to take risks when they evaluate the results of their investments less frequently. We formally prove that these findings can be accommodated by a standard CRRA functional, once we assume narrow bracketing, a specific form of myopia by which subjects take each decision in isolation and neglect asset integration. We build a compound dataset containing the evidence of Gneezy and Potters (1997) and other replications and structurally estimate both “CRRA plus narrow bracketing” and MLA, together with a mixture model in which we estimate the probability with which each observation is generated by either model. Our results suggest that the CRRA model can also accommodate this experimental evidence, providing empirical support to our theoretical findings.
Sponsor: Financial support from Ministerio de Economía y Competitividad (ECO2015-65820-P) and Instituto Valenciano de Investigaciones Económicas (IVIE) is gratefully acknowledged.
ISSN: 0165-1765 (Print) | 1873-7374 (Online)
DOI: 10.1016/j.econlet.2019.04.006
Language: eng
Type: info:eu-repo/semantics/article
Rights: © 2019 Published by Elsevier B.V.
Peer Review: si
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Appears in Collections:INV - ELYE - Artículos de Revistas
INV - GIMA - Artículos de Revistas
INV - Análisis Económico - Artículos de Revistas

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