How Loss Aversion makes you lose

What can the economics of professional sports teach you? I do not mean the money flow of the tournaments, but to consider the club and shot decisions of the players as economic events taking place in an economic universe of the scorecard.

That was the tack of a Wake Forest University sports economist who found that even pro players typically took riskier shots to try to recover a disadvantage of an earlier poor shot.

That tee shot lost in the rough or hit in the water at Augusta is likely to be followed by a risky, aggressive second shot — a decision you might expect from a recreational golfer, not a pro.

Research by Wake Forest University sports economist Todd McFall suggests that a faction of players beginning holes with penalty strokes will regularly take greater risks in their subsequent shots to avoid any additional strokes—a decision predicted by behavioral economics that can lead to disastrous consequences for golfers’ performances.

“Loss aversion leads penalized golfers to violate not only basic economic principles regarding efficient decision making, but also golf orthodoxy, which is to play one shot at a time regardless of previous outcomes.” McFall says. “The cost they suffer for this is inefficient performance and ultimately, higher scores”.

That this finding has applicability in the way we conduct our routine affairs seems hardly worth stating. This research is a good call for self examination!

But it's also golf, and that calls for a golf joke.

A golfer badly sliced his tee shot off hole 4. The ball went deep into a dense woods. When the golfer got there he learned that there was a deep ravine, heavily overgrown. Wanting to avoid a penalty stroke, he plunged down into the ravine carrying his trusty 8-iron.

At the bottom he clubbed at the overgrowth to find his ball. Shortly he heard a sharp crack from the club head. Bending down he was shocked to discover that his club had cracked the side of a human skull! He recoiled upward and then bent down again. Moving the underbrush, he saw the skeleton was complete. Moreover, it was clad in the course's logo jacket and t-shirt and wore trousers much like his own. In its left hand was a slightly rusted 8-iron.

Immediately, the golfer clambered up the slope a few feet and yelled loudly for his buddy. "Jim! Jim! Come quick! Hurry! Come quick!"

Jim's face appeared many feet above. "What's the emergency?"

"Throw me my six iron! I've just learned that you can't get out of here with an eight!"

Loss aversion: