Myopic loss aversion: Demystifying the key factors influencing decision problem framing

Advancement of myopic loss aversion theory has been hamstrung by conflicting results, methodological inconsistencies, and a piecemeal approach toward understanding the key factors influencing decision problem framing. A series of controlled experiments provides a more holistic view of the variables promoting myopia. Extending the information horizon promotes broad framing, which propels risk. Evaluation frequency and decision frequency interact regardless of information horizon, supporting the notion that restricting either mechanism alleviates myopia. When conducting evaluations infrequently, neither segregating nor aggregating retrospective returns significantly alters risk preferences. Moreover, students and real retirement plan participants exhibit comparable appetites for risk, implying that both groups frame decision problems similarly. Explanations for these findings and avenues for future research are discussed.

► Controlled experiments provide a more holistic view of the factors promoting myopia.
► Extending the information horizon promotes broad framing.
► Evaluation frequency and decision frequency interact.
► Neither segregating nor aggregating retrospective returns alters risk preferences.
► Students and real retirement plan participants frame decision problems similarly.