CeDEx workshop - Jeroen Nieboer (CeDEx)

Mitigating Myopic Loss Aversion - Groups and Communication

Abstract: Myopic Loss Aversion (MLA) is a behavioural theory of market behaviour that relates investments' evaluation horizon to people's risk tolerance. Various experiments have provided support for MLA's existence, including laboratory asset markets and experiments with financial professionals as subjects. Recently, it has been shown that MLA is significantly mitigated by having subjects choose in teams. Teams' choices are closer to risk neutrality by taking significantly more risk, thus leading to higher expected earnings (Sutter, 2007). Why teams are more risk-neutral then individuals in this and many other settings is unclear, but some of the results indicate that communication plays an important role. We present an experiment that tests for the effects of communication between individuals, without putting these individuals in teams. We present results of a replication treatment, and propose follow-up treatments.