Myopic loss aversion: Potential causes of replication failures

Abstract

This paper presents two studies on narrow bracketing and myopic loss aversion. The first study shows that the tendency to segregate multiple gambles is eliminated if subjects face a certainty equivalent or a probability equivalent task instead of a binary choice. The second study argues that the behavioral differences previously attributed entirely to myopic loss aversion are partly because long-term return properties are simply easier to grasp if the return information is already provided in the form of long-term returns rather than one-year returns. Both results may be related to recent failures to replicate myopic loss aversion. When the choice situation is structured in such a way that it draws respondents’ attention to the final outcome distribution and/or if severe misestimations of long-term returns based on short-term return information are unlikely, behavioral differences consistent with myopic loss aversion are less likely to be observed.

Keywords

• multiple prospects
• aggregation
• segregation
• myopic loss aversion
• narrow bracketing