phenomenon “myopic loss aversion.” The only way you can ever take 100 attractive bets is by first taking the first one, and it is only thinking about the bet in isolation that fools you into turning it down. The same logic applies to investing in stocks and bonds. Recall that the equity premium puzzle asks why people would hold so many bonds if they expect the return on stocks to be 6% per year higher. Our answer was that they were taking too short-term a view of their investments. With a 6% edge in returns, over long periods of time such as twenty or thirty years, the chance of stocks doing
...more
