Decision Flexibility, Not Information Feedback, Explains Myopic Loss Aversion

Working Paper

Individuals often take too little risk when they see their investment results too frequently—a pattern known as myopic loss aversion (MLA). Yet it has remained unclear whether this reaction is caused by frequent feedback or by the opportunity to change decisions more often. Using two large studies that separately varied these two elements, we showed that MLA stems mainly from how often people are allowed to revise their investments, not from how often they receive performance updates. This insight sharpens the theory behind MLA and informs how investment platforms, financial advisors, and policymakers can better support long-term investing.

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