DP4084 Does Binding of Feedback Influence Myopic Loss Aversion? An Experimental Analysis

Author(s): Thomas Langer, Martin Weber
Publication Date: October 2003
Keyword(s): evaluation period, feedback frequency, intertemporal decision-making, length of commitment, myopic loss aversion
JEL(s): D80, G10
Programme Areas: Financial Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=4084

The feedback frequency and the length of commitment are two important features of investment alternatives in intertemporal decision-making. So far, empirical research has shown that a lower feedback frequency combined with a longer binding period decreases myopia and thereby increases the willingness to invest into a risky asset. Almost nothing is known, however, about the isolated effect of each variable and about a possible interaction of these variables. In an experimental study, we disentangle the intertwined manipulation of feedback frequency and binding period, commonly used in previous research, to analyse how both variables alone contribute to the change in myopia. We find a strong effect depending on the length of commitment, a much less pronounced effect of feedback and a strong interaction between both variables. The results have important implications for real world intertemporal decision-making.