For an extreme case, imagine an observer who chooses an allocation of assets to stocks once a month, on the basis of the experience of the past month and expectations for the immediate future. Now imagine an investor who decides to be committed to an allocation for the next five years. They assume that investors are myopically loss averse, and use the observed difference in returns between stocks and bonds to derive the investment horizon for which such investors will find the two forms of investment to be equally attractive. It turns out to be about a year. One important conclusion from their analysis is that an investor who considers a longer horizon will be willing to take risks that a more myopic investor ill reject, even if their underlying aversion to risk is the same.
Investment decisions have both emotional and financial consequences over time.
And the optimal decision is certainly irrelevant if it is one that means the investor is likely to change course at the wrong time. No one likes to lose, but regret makes losing hurt more. Clearly, the losing investor who believes that he should have anticipated the poor performance of his investment feels worse than if he believes the failure could not have been predicted. In general, people tend to ruminate on the unusual aspects of the events that led to bad outcomes, and to focus their regrets on such unusual or abnormal aspects. If they followed someone's recommendations in straying from their normal path, the regret will easily turn into resentment and anger.