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The Effect of Information Feedback Frequency and Investment Flexibility on Myopic Loss Aversion

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Author(s): Mu-Lan Wang | Hung-Hsi Huang | Shih-Chieh Hsu

Journal: Asian Economic and Financial Review
ISSN 2305-2147

Volume: 3;
Issue: 9;
Start page: 1232;
Date: 2013;
Original page

Keywords: Prospect Theory | Myopic loss aversion | Mental accounting

ABSTRACT
The prospect theory proposed by (Kahneman and Tversky, 1979) stated that people are risk-averse when faced with profits and risk-loving when faced with loss. Benartzi and Thaler (1995) combined the Myopic Loss Aversion and Mental Accounting in explaining the equity premium puzzle. Gneezy and Potters (1997) found that the betting amount under high-frequency information feedback is higher than that under low-frequency information feedback. Haigh and List (2005) verified that the professional futures traders have higher tendency towards MLA than the students. Bellemare et al. (2005) also designed similar experiment to compare the betting behavior under the information feedback frequency and investment flexibility. According to the previous experiment design, this study provides an experiment named “colored balls guess” on 54 subjects (including 18 general people, 18 MBA students and 18 professional financial workers, respectively). Examined on the different information feedback frequency levels and investment flexibility, the main findings are as follows. First, the level of the information feedback frequency will affect the size of the bet. Second, the adjustment of investment flexibility is not obviously correlative to betting amounts. Third, the professional financial workers show comparatively less tendency towards Myopic Loss Aversion. Finally, compared to women, men have significant tendency towards Myopic Loss Aversion.
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