Loss Aversion in Golf:

Tiger Woods and other golf superstars who stand to win millions on inch-long putts apparently are subject to the same fear and aversion to risk that can afflict investors and managers. Taking the safe route, however, has its own costs, according to new Wharton research.

In a working paper titled, Is Tiger Woods Loss Averse? Persistent Bias in the Face of Experience, Competition, and High Stakes, Wharton operations and information management professors Devin Pope and Maurice Schweitzer examine putts during pro golf tournaments and determine that even the best golfers systematically miss the opportunity to score a “birdie” — when a player sinks a ball in one stroke less than the number of expected strokes for a given hole — out of fear of having a “bogey” — or taking one stroke more than what is expected. According to the researchers, for many, the agony of a bogey seems to outweigh the thrill of a birdie.

The researchers calculate that this type of decision-making bias costs the average professional golfer about one stroke during a 72-hole tournament. For the top 20 golfers, that translates to a combined loss of about $1.2 million in prize money a year. According to the paper, golfers frame their approach to putting based on the risk of coming in worse than “par” — or the number of strokes a professional golfer would be expected to take to complete a given hole. The researchers’ analysis shows that golfers avoid the possibility of loss by playing conservatively when they have the opportunity to do better than par, but will try harder if they are at risk of coming in worse than par.

Pope says that the study explores “loss aversion” — a bias in decision-making that is an important element in the growing field of behavioral economics, which explores how human psychology impacts markets and business. “This research provides evidence that people work especially hard in order to avoid losses,” says Pope.

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