Myopic Loss Aversion

Investors who are presented with annual return data for stocks and bonds tend to adopt more conservative strategies (lower allocation to equities) than those who were presented with longer-term return data (such as 30-year compound returns.) Despite the fact that the planning horizon (i.e. retirement) is better represented by the 30-year return than the 1-year return, investors seem to be more concerned with the potential for a short term loss than in planning for the relevant time horizon and accepting periodic short-term losses. Bernartzi and Thaler (1999) describe this phenomenon as “myopic loss aversion.”

For more information, see all articles on: Behavioral Finance, Research

See also:
  • The Behavioral Finance Investment Framework
  • Mental Accounting and Investment Decisions
  • Forming an Investment Risk Objective
  • Average Gain, Average Loss, and the Gain to Loss Ratio
  • Value at Risk (VaR)
  • Technical Analysis Explained : The Successful Investor's Guide to Spotting Investment Trends and Turning Points

    The Intelligent Investor: The Classic Text on Value Investing

    Financial Statement Analysis: A Practitioner's Guide, 3rd Edition

    Managing Investment Portfolios: A Dynamic Process (CFA Institute Investment Series)

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