Myopic Loss Aversion
research · Myopic Loss Aversion and the Equity Premium Puzzle (Benartzi & Thaler, 1995) (1995)
Investors are more sensitive to short‑term losses than to long‑term gains, leading them to avoid stocks and realize lower overall returns. This bias is heightened when they receive frequent portfolio performance updates.
Core Concepts
The Problem
People sell too soon and miss out on long‑term growth because temporary dips feel disproportionately painful.
The Claim
Reducing the frequency of portfolio checks and focusing on long‑term outcomes can mitigate this bias and improve investment returns.
Key Evidence
- •Experimental studies show that subjects who saw more frequent feedback took less risk and ended up with lower terminal wealth.
Practical Implication
Advisors should encourage clients to look at their portfolios less often, ideally annually or when a rebalancing trigger fires.
Nuance & Limits
The effect is stronger when losses loom larger than gains, which is typical for most individuals.
Source Material
Citation Density
Very high – seminal paper in behavioral finance, widely replicated and cited.
Who's Talking About This
1 episode reference this idea.
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