Sound financial decisions require accurate perception, judgment and knowledge. However, cognitive biases and psychological predispositions often cloud our judgment,
causing suboptimal financial choices. This dissertation was inspired by one such bias, temporal myopia, which predisposes individuals to overly concentrate on the immediate future, neglecting or underweighting the long-term ramifications of their decisions. In the context of stock investing, where long-term orientation is key to investment success, myopic views can result in inefficient savings allocation, culminating in substantial foregone returns. To examine the significance and economic relevance of individual temporal myopia, we addressed the research question: To what extent does myopia affect investor risk perception and trading behavior?
A series of decision experiments allowed us to delineate these relationships, holding constant the influence of other factors such as return beliefs or initial wealth endowments. We provided evidence that myopia reduces financial risk-taking, promotes excessive trading, and has the potential to explain biased beliefs about stock investing risks. Consequently, temporal myopia imposes considerable costs on investors, manifesting both as missed opportunities for higher returns and as direct financial losses through elevated trading expenses. Despite the trend toward lower explicit trading costs in passive investment vehicles, excessive trading spurred by myopic behavior can erode returns through unfavorable price quotes (higher bid and lower ask prices), underscoring the critical need for investors to mitigate myopic tendencies in their decision-making processes.