Dec 31, 2001
Published in: The Journal of Finance, v. 58, no. 2, Apr. 2003, p. 821-838
Posted on RAND.org on December 31, 2002
The authors test the frequency of feedback information about the performance of an investment portfolio and the flexibility with which the investor can change the portfolio influence her risk attitude in markets. In line with the prediction of Myopic Loss Aversion (Benartzi and Thaler, 1995), the authors find that more information and more flexibility result in less risk taking. Market prices of risky assets are significantly higher if feedback frequency and decision flexibility are reduced. This result supports the findings from individual decision-making, and shows that market interactions do not eliminate such behavior or its consequences for prices.