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Is the equity premium puzzle just a lack of foresight? The impact of targeting on myopic loss a aversion
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Resumo(s)
Imagine an individual facing three identical investment decisions in a row. Each time she
decides on how much to invest in a risky asset or save. Also, imagine the same individual deciding
about three consecutive investments at once. Equal for rational investors, when suffering Myopic
Loss Aversion, the latter scenario is perceived differently though: More is invested when payoffs
are evaluated over a greater time horizon. Based on the theory of reference points I proposed a
novel method – investment targets – to shift attention to longer-term goals. I find that exogenously
proposed targets eliminate Myopic Loss Aversion in an experiment.
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Laboratory experiment Myopic loss aversion Evaluation period Reference points