Editing Equity premium puzzle (section)

=== Myopic loss aversion ===

Benartzi & Thaler (1995) contend that the equity premium puzzle can be explained by myopic loss aversion and their explanation is based on Kahneman and Tversky's prospect theory.<ref name="Myopic Loss Aversion and the Equity">{{cite journal |last1=Benartzi |first1=Shlomo |last2=Thaler |first2=Richard H. |title=Myopic Loss Aversion and the Equity Premium Puzzle |journal=The Quarterly Journal of Economics |date=February 1995 |volume=110 |issue=1 |page=73 |doi=10.2307/2118511 |jstor=2118511 |s2cid=55030273 |url=https://www.jstor.org/stable/2118511 |access-date=1 May 2022}}</ref> They rely on two assumptions about decision-making to support theory; loss aversion and mental accounting.<ref name="Myopic Loss Aversion and the Equity"/> Loss aversion refers to the assumption that investors are more sensitive to losses than gains, and in fact, research calculates utility of losses felt by investors to be twice that of the utility of a gain.<ref name="Myopic Loss Aversion and the Equity"/> The second assumption is that investors frequently evaluate their stocks even when the purpose of the investment is to fund retirement or other long-term goals.<ref name="Myopic Loss Aversion and the Equity"/> This makes investors more risk averse compared to if they were evaluating their stocks less frequently.<ref name="Myopic Loss Aversion and the Equity"/> Their study found that the difference between returns gained from stocks and returns gained from bonds decrease when stocks are evaluated less frequently.<ref name="Myopic Loss Aversion and the Equity"/> The two combined creates myopic loss aversion and Benartzi & Thaler concluded that the equity premium puzzle can be explained by this theory.<ref name="Myopic Loss Aversion and the Equity"/>