Do financial advisors exhibit myopic loss aversion?*

Kristoffer W. Eriksen, and Ola Kvaløy (2010) “Do financial advisors exhibit myopic loss aversion?."  Financial Markets and Portfolio Management, June 2010, Volume 24, Issue 2, pp 159-170.

==original Abstract==

Myopic loss aversion (MLA) has been proposed as an explanation for the equity premium puzzle, and a number of experiments on students indicate that people do exhibit MLA. However, many people do not rely on their own judgment when making investment decisions, but obtain help from financial investment advisors on how to allocate their wealth. The preferences and choices of financial advisors are thus important for understanding investment behavior. In this paper we make use of 50 professional financial advisors to examine whether they exhibit behavior consistent with MLA. Indeed, we find that they behave consistently with MLA to a larger extent than students.

==selected references==

  1. Bellemare, C., Krause, M., Kröger, S., Zhang, C.: Myopic loss aversion, information dissemination, and the equity premium puzzle. Econ. Lett. 87, 319–324 (2005) CrossRef
  2. Benartzi, S., Thaler, R.: Myopic loss aversion and the equity premium puzzle. Q. J. Econ. 110, 73–92 (1995) CrossRef
  3. Canner, N., Mankiew, N.G., Weil, D.N.: An asset allocation puzzle. Am. Econ. Rev. 87, 181–191 (1997)
  4. Capon, N., Fitzsimons, G., Prince, R.: An individual level analysis of the mutual fund investment decision. J. Financ. Serv. Res. 10, 59–82 (1996) CrossRef
  5. De Giorgi, E., Hens, T.: Making prospect theory fit for finance. Financ. Mark. Portf. Manag. 20, 339–360 (2006) CrossRef
  6. Fellner, G., Sutter, M.: Causes, consequences and cures of myopic loss aversion—An experimental investigation. Econ. J. 119, 900–916 (2009) CrossRef
  7. Feng, L., Seasholes, M.S.: Do investor sophistication and trading experience eliminate behavioral biases in financial markets? Rev. Finance 9, 305–351 (2005) CrossRef
  8. Gneezy, U., Potters, J.: An experiment on risk taking and evaluation rounds. Q. J. Econ. 102, 631–645 (1997)
  9. Gneezy, U., Kapteyn, A., Potters, J.: Evaluation rounds and asset prices in a market experiment. J. Finance 58, 821–837 (2003) CrossRefHaigh, M.S., List, J.A.: Do professional traders exhibit myopic loss aversion? An experimental analysis. J. Finance 60, 523–534 (2005) CrossRef
  10. Harrison, G.W., Rutström, E.E.: Risk aversion in the laboratory. Res. Exp. Econ. 12, 41–196 (2008) CrossRef
  11. Kahneman, D., Tversky, A.: Prospect theory: An analysis of decision under risk. Econometrica 47, 263–291 (1979) CrossRef
  12. Kahneman, D., Tversky, A.: Choices, values and frames. Am. Psychol. 39, 341–350 (1984) CrossRef
  13. Langer, T., Weber, M.: Does binding of feedback influence myopic loss aversion? An experimental analysis. CEPR Discussion Paper 4084, London (2003)
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Psychologists at the Gate: A Review of Daniel Kahneman’s Thinking, Fast and Slow*

Shleifer, Andrei. 2012. “Psychologists at the Gate: A Review of Daniel Kahneman’s Thinking, Fast and Slow." Journal of Economic Literature, 50(4): 1080-91. link to AEAWeb;

==Notes by yinung==

這篇文章回顧 Daniel Kahneman 的書  “Thinking, Fast and Slow

… because the  book mentions few economic applications, I  will describe some of the economic research that has been substantially infuenced by  this work.

作者認為 Kahneman and Tversky 影響最大者在於 財務學 (或稱行為財務) … this work. My feeling is that the most profound infuence of Kahneman and Tversky’s work on economics has been in fnance, on what has now become the field of behavioral finance…


…two common objections to the introduction of psychology into economics,…

A. 經濟學較著重研究人類行為的一般觀點,而非特殊行為
… economists should focus on “first order things”rather than quirks (quirk 這個字原意是).

1. 反例1,人們花太多錢在保險,只為了很小的可能損失 (這可不是特殊現象),
individuals pay large multiples of actuarially fair value to buy insurance against small losses, as well as to reduce their deductibles (Sydnor 2010).

2. 反例2,廣告 (??還沒看懂)
the standard economic view that persuasion is conveyance of information seems to run into a rather basic problem that advertising is typically emotional, associative, and misleading— yet nonetheless effective (Bertrand et al. 2010; DellaVigna and Gentzkow 2010; Mullainathan, Schwartzstein, and Shleifer 2008).

3. 反例3,財務理論說,投資者應選 low-cast index fund, 但事實上大部份人卻是選 high-cost actively managed funds

B. 市場力量可消除心理因素對價格和分配之影響 (價格和效率)
… market forces eliminate the influence of psychological factors on prices and allocations.

1. 反例,Real-world arbitrage is costly and risky, and hence limited, … Dozens of empirical studies confirm that, even in markets with relatively inexpensive arbitrage, identical, or nearly identical, securities trade at different prices. With costlier arbitrage, pricing is even less efficient.

2. 市場參與者大多不理性,即是有專家之協助 (專家的動機通常值得懷疑,見(Chalmers and Reuter 2012; Gennaioli,
Shleifer, and Vishny 2012))
Market forces often work to strengthen, rather than to eliminate, the influence of psychology.
List 研究棒球卡交易,發現專家沒有 endowment effects, 支持了此一觀點。

兩個思考體系 (two systems)

System 1: 直覺、自動、非意識性、容易 (intuitive, automatic, unconscious, and effortles);快速反應,透過聯想、組合

System 2: 具意識性、緩慢、受控制 …但不容易 (conscious, slow, controlled, deliberate, effortful, statistical, suspicious, and lazy (costly to use));這是經濟學家認為的思考

Heuristics and Biases

Anchoring effects: 對未知的問題,容易受到前置性的影響 (擲俄羅斯輪盤,看到數字後,猜非洲國家佔聯合國之比例…, 看到輪盤數字小者猜小, 看到數字大者猜大)

… respondents receive all the information they need, but nonetheless do not use it correctly.


人類注意和聯想到的資訊,並非皆是在最佳決策中所需要的… 系統 1 的思考是自動反應,而非最佳化: 選擇性認知與記憶之決策行為(highly selective perception and memory … before we make decisions and choice)
… the fundamental feature of System 1 is that what our attention is drawn to, what we focus on, and what we recall is not always what is most necessary or needed for optimal decision making.

==original Abstract==

The publication of Daniel Kahneman’s book, Thinking, Fast and Slow, is a major intellectual event. The book summarizes, but also integrates, the research that Kahneman has done over the past forty years, beginning with his path-breaking work with the late Amos Tversky. The broad theme of this research is that human beings are intuitive thinkers and that human intuition is imperfect, with the result that judgments and choices often deviate substantially from the predictions of normative statistical and economic models. In this review, I discuss some broad ideas and themes of the book, describe some economic applications, and suggest future directions for research that the book points to, especially in decision theory. (JEL A12, D03, D80, D87)


有關 prospect theory

  • Barberis, Nicholas. Forthcoming. “Thirty Years of Prospect Theory in Economics.” Journal of Economic Perspectives.
  • Bordalo, Pedro, Nicola Gennaioli, and Andrei Shleifer. 2012b. “Salience in Experimental Tests of the Endowment Effect.” American Economic Review 102 (3): 47–52.
  • Bordalo, Pedro, Nicola Gennaioli, and Andrei Shleifer. 2012c. “Salience Theory of Choice Under Risk.” Quarterly Journal of Economics 127 (3): 1243–85.
  • Hart, Oliver, and John Moore. 2008. “Contracts as Reference Points.” Quarterly Journal of Economics 123 (1): 1–48.
  • Koszegi, Botond, and Matthew Rabin. 2006. “A Model of Reference-Dependent Preferences.” Quarterly Journal of Economics 121 (4): 1133–65.
  • *List, John A. 2003. “Does Market Experience Eliminate Market Anomalies?” Quarterly Journal of Economics 118 (1): 41–71.
  • Pope, Devin G., and Maurice E. Schweitzer. 2011. “Is Tiger Woods Loss Averse? Persistent Bias in the Face of Experience, Competition, and High Stakes.” American Economic Review 101 (1): 129–57.


  • Barberis, Nicholas, and Ming Huang. 2008. “Stocks as Lotteries: The Implications of Probability Weighting for Security Prices.” American Economic Review 98 (5): 2066–2100.
  • Barberis, Nicholas, Andrei Shleifer, and Robert W. Vishny. 1998. “A Model of Investor Sentiment.” Journal of Financial Economics 49 (3): 307–43.
  • Benartzi, Shlomo, and Richard H. Thaler. 1995. “Myopic Loss Aversion and the Equity Premium Puzzle.” Quarterly Journal of Economics 110 (1): 73–92.
  • De Bondt, Werner F. M., and Richard H. Thaler. 1985. “Does the Stock Market Overreact?” Journal of Finance 40 (3): 793–805.
  • Frazzini, Andrea, and Owen A. Lamont. 2008. “Dumb Money: Mutual Fund Flows and the Cross-Section of Stock Returns.” Journal of Financial Economics 88 (2): 299–322.
  • Lakonishok, Josef, Andrei Shleifer, and Robert W. Vishny. 1994. “Contrarian Investment, Extrapolation, and Risk.” Journal of Finance 49 (5): 1541–78.
  • Sydnor, Justin. 2010. “(Over)insuring Modest Risks.” American Economic Journal: Applied Economics 2 (4): 177–99.


  • Gennaioli, Nicola, and Andrei Shleifer. 2010. “What Comes to Mind.” Quarterly Journal of Economics 125 (4): 1399–1433.
  • House money effects
    Thaler, Richard H., and Eric J. Johnson. 1990. “Gambling with the House Money and Trying to Break Even: The Effects of Prior Outcomes on Risky Choice.” Management Science 36 (6): 643–60.
  • Framming
    Tversky, Amos, and Daniel Kahneman. 1981. “The Framing of Decisions and the Psychology of Choice.” Science 211 (4481): 453–58.

Are Behavioral Choices in the Ultimatum and Investment Games Strategic?

Date: 2012-09
By: Lora R. Todorova (Faculty of Economics and Management, Otto-von-Guericke University Magdeburg)
Bodo Vogt (Faculty of Economics and Management, Otto-von-Guericke University Magdeburg)
This paper experimentally examines the relationship between self-reporting risk preferences and behavioral choices in the subsequently played dictator, ultimatum and investment games. The results from these experiments are used to discern the motivational bases of behavioral choices in the ultimatum and investment games. The focus is on investigating whether strategic considerations are important for strategy selection in the two games. We find that self-reporting risk preferences does not alter the dictators’ offers and trusters’ investments, while it significantly decreases the proposers’ offers and leads to a substantial decrease in the amount trustees give back to their partners. We interpret these results as evidence that the decisions of proposers in the ultimatum game and trustees in the investment game are strategic.
Keywords: coordination game, dictator game, ultimatum game, investment game, questionnaire, risk scale, risk preferences

Handbook of Experimental Economics Results

source: Handbook of Experimental Economics Results

由 Charles R. Plott & Vernon L. Smith 主編, 回顧各種實驗之結果, 出版於 2008年, ISBN: 9780444826428


Handbook of Experimental Economics Results, 1st Edition,Charles Plott,Vernon Smith,ISBN9780444826428Experimental methods in economics respond to circumstances that are not completely dictated by accepted theory or outstanding problems. While the field of economics makes sharp distinctions and produces precise theory, the work of experimental economics sometimes appear blurred and may produce results that vary from strong support to little or partial support of the relevant theory.
At a recent conference, a question was asked about where experimental methods might be more useful than field methods. Although many cannot be answered by experimental methods, there are questions that can only be answered by experiments. Much of the progress of experimental methods involves the posing of old or new questions in a way that experimental methods can be applied.
The title of the book reflects the spirit of adventure that experimentalists share and focuses on experiments in general rather than forcing an organization into traditional categories that do not fit. The emphasis reflects the fact that the results do not necessarily demonstrate a consistent theme, but instead reflect bits and pieces of progress as opportunities to pose questions become recognized.
This book is a result of an invitation sent from the editors to a broad range of experimenters asking them to write brief notes describing specific experimental results. The challenge was to produce pictures and tables that were self-contained so the reader could understand quickly the essential nature of the experiments and the results.

Table of Contents


注意 ch7. 中的這篇, 是有關報酬效果和風險偏好
Susan K. Laury and Charles A. Holt, “Payoff Scale Effects and Risk Preference Under Real and Hypothetical Conditions"

注意 ch 8. 其中的這一篇是有關有 lottery 程序控制風險偏好
Joyce E. Berg, Jhon W.Dickhaut and Thomas A.Rietz, “On the Performance of the Lottery Procedure for Controlling Risk Perferences"