Short term risk to Myopic loss aversion

[darshanP]

Can some1 please elaborate how Short term risk when leads to excessively high-risk premium can lead to Myopic loss aversion? and basically what those lines mean ?
Thanks

 

[oktavian]

I read that part again and it’s not easy to understand. But googling gives a nice, clear definition:

Quote:Myopic loss aversion is the combination of a greater sensitivity to losses than to gains and a tendency to evaluate outcomes frequently.

So.. this person will check their portfolio returns on their smartphone every 10 minutes and feel more pain over losses than they feel joy over gains.
The opposite case (rational economic person) is someone who creates their portfolio, and then ignores it… gets on with their life. And they value gains and losses equally.

 

[daharmattan1]

If it helps you can tie what oktavian said into the idea that strategic asset allocation, which is long term, drives the majority of portfolio returns, and deviating from that strategy (e.g. evaluating and making changes freqeuntly) is sub-optimal