Myopic prospect theory vs. myopic loss aversion: how general is the phenomenon?
Langer Thomas, Weber Martin
Abstract
Individuals often act myopically in evaluating sequences of investment opportunities. For loss averse decision makers, myopia causes the sequence to look less attractive and might result in rejecting an investment program that would have been accepted otherwise. In this paper, we argue that the relation between myopia and the attractiveness of a lottery sequence is less general than previously suggested in the literature. We extend the concept myopic loss aversion to myopic prospect theory, predicting that for specific risk profiles, myopia will not decrease but increase the attractiveness of a sequence. We support our theoretical predictions by experimental evidence. (C) 2003 Published by Elsevier B.V.
Keywords
myopia repeated investing prospect theory risk-taking evaluation periods large numbers uncertainty fallacy choices