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Revisiting loss aversion: Evidence from Professional Tennis
Abstract
We provide further evidence for the existence of loss aversion in a high-stakes context: professional tennis. Our contribution to the literature is threefold: (1) We provide a theoretical framework as a basis of our investigation, (2) we test the predictions of our model by using a novel dataset for both male and female players from the Dubai Tennis Championships 2013 that not only includes the serve speed but also the serve location, and (3) we employ semiparametric Additive Mixed Models to include smooth one-, two- and three-dimensional interaction effects for modelling the serve speed and placement. Our results show that when behind in score players put more effort into the serve than when they are ahead. We also document that players take more risks in the final. Finally, we detect remarkable gender differences with respect to the incidence of loss aversion within a game versus within a set.
... That is, players condition the relationship between prize and tournament entry on their trajectory on that tournament in previous recent seasons, yet those recent performances do not have a significant effect on the likelihood of making the cut in the tournament. This finding adds to the growing body of literature that shows evidence of biases even amongst experienced agents competing for high stakese.g., Pope and Schweitzer (2011) and Anbarci, Arin, Kuhlenkasper, and Zenker (2018) find evidence of loss aversion in the PGA Tour and ATP, respectively. In contrast, the finding that positive (negative) within-period trajectory plays a significant moderating role on the relationship between prize and tournament entry, and at the same time within-period trajectory does have a positive (negative) effect on the outcome of the subsequent tournament, is suggestive that golfers learn about forthcoming performance through within-period momentum. ...
... The second contribution is to the growing body of literature that shows evidence of behavioral biases even amongst experienced agents competing for high stakes in real marketplaces. Namely, Pope and Schweitzer (2011) and Anbarci et al. (2018) find evidence of loss aversion amongst golfers in the PGA Tour and tennis players in the ATP, respectively. Allen, Dechow, Pope, and Wu (2017) and Markle, Wu, White, and Sackett (2018) find that professional and recreational marathon runners use goals, such as round numbers (e. g., running a marathon in four hours), as reference points to subjectively judge their performance. ...
This study examines how past performance moderates the effect of the size of the prize on tournament self-selection. We identify two types of trajectories that play simultaneous and unique roles in moderating the influence of prize on an agent’s decision to enter a tournament: within-period trajectory, which reflects an agent’s short-term performance streak in the tournaments recently entered, and across-period trajectory, which reflects an agent’s long-term performance streak in the same tournament across different periods. We find that positive (negative) within-period and across-period trajectories strengthen (weaken) the positive effect of the size of the prize on tournament entry. Although both performance trajectories have a significant and sizable influence, we find that within-period trajectory plays the strongest moderating effect. We draw on the representativeness heuristic and the availability heuristic to explain our findings. We study these notions using 54,915 self-selection decisions that professional golfers have taken over a ten-year period (1996–2006) when entering PGA Tour tournaments. We draw implications for the craft of contest design.
... To solve this problem, they provide a theoretical framework, divide players into men's and women's teams, and collect their athletic data, and the final results show that players who are behind in scoring serve harder than those who are leading. Although their experiments were coherent, the lack of experimental data made the authenticity of the conclusions unreliable [4]. Shim believes that cryptographic primitives are fundamental building blocks for designing security protocols to achieve confidentiality, authentication, and integrity. ...
With the progress of the times and the development of science and technology, the scientific and technological elements infiltrated in various sports fields are increasingly enriched, which greatly improves the skills and technical and tactical levels of sports participants and sports equipment users and the development of sports items. With the increasing importance of education, people have begun to pay attention to physical education. Tennis has also received much attention in recent years. However, there are many problems in traditional tennis, such as untimely detection and irregular movements, so this paper is aimed at studying how to design an intelligent system for tennis based on wireless sensor network technology. With the development of sports, athletes have higher and higher requirements for themselves. However, traditional training has been unable to find their own mistakes in time, and the intelligent tennis system can not only analyze the data information of tennis in the air but also provide users with various sports analysis data to help players find specific problems and achieve the purpose of comprehensively improving tennis skills. This paper presents the development of wireless sensor networks and tennis and introduces the concepts of wireless sensor networks and tennis. From the data of the experiment in the text, we can see that the growth rate of tennis courses offered in colleges and universities increased from about 4% to about 24% in 2019, an increase of 20%. In 2020, the growth rate of tennis courses in colleges and universities increased from about 21% to about 33%, an increase of 12%. It can be seen that in recent years, tennis has been valued by major universities and loved by students. Therefore, it is necessary to take necessary measures for the development of tennis, and it is very meaningful to realize the intelligent system of tennis based on wireless sensor network.
Working, workers, and work places have been intensively impacted by Pandemic period. The authors of this study are actually analysing in another study the telework subject on social media during pandemic period. According to their first results people they really don't talk about telework neither on Twitter nor on Facebook. They don't also describe too much where and how they work. Contrarily, telework is becoming a protest or humour subject. This paper summarizes the frequency of workplace visits during pandemic period between february and november 2020 in the world.
We incorporate prospect-theory preferences in a game-theoretic model to study voter turnout. We show that voter turnout is heavily affected by agents having subjective reference points with respect to the vote or abstain decision and their subjective probability weighting in the decision-making process. Using empirically based parameter values, we show that our model has lower prediction error than other game-theoretic models with standard expected-utility preferences. We also find that our model maintains desirable comparative statics effects and leads to higher turnout predictions in larger electorates.
Although experimental studies have documented systematic decision errors, many leading scholars believe that experience, competition, and large stakes will reliably extinguish biases. We test for the presence of a fundamental bias, loss aversion, in a high-stakes context: professional golfers' performance on the PGA Tour. Golf provides a natural setting to test for loss aversion because golfers are rewarded for the total number of strokes they take during a tournament, yet each individual hole has a salient reference point, par. We analyze over 2.5 million putts using precise laser measurements and find evidence that even the best golfers—including Tiger Woods—show evidence of loss aversion.
Tournaments provide incentives through the prize spread. Agents are predicted to work harder for higher prize spreads, and thus principals are predicted to maximize the spread. This paper shows experimentally how changing institutional environments affect the way that principals structure tournament incentives, and the degree of wage compression. While in some settings tournaments provide powerful incentives, and principals maximize the prize spread, two specific factors – sabotage opportunities, and loss aversion among agents – are shown to undermine the power of tournaments and cause principals to choose wage compression.
Many labor markets are characterized by long-term employment relations and incomplete labor contracts. The employees' effort, in particular, is typically not contractible so that effort needs to be enforced endogenously in repeated interactions. Theory and evidence shows that under these conditions fairness concerns play an important role in affecting effort choices and wage setting, rendering wage levels and wages' responsiveness to shocks rather rigid. In addition, loss aversion and money illusion interact with fairness concerns to generate downwards nominal wage rigidity and -in case of strong unions -downwards real wage rigidity. Thus, key structural features of labor markets such and long-term relations and contractual incompleteness and the psychological forces of fairness concerns, loss aversion and money illusion lead to substantial departures from the predictions of the standard competitive model, rendering this model problematic for policy prescriptions. We illustrate this claim for two policy domains -monetary policy and minimum wage legislation.
This paper proposes a model of cab drivers' labor supply, building on Henry S. Farber's (2005, 2008) empirical analyses and Botond Koszegi and Matthew Rabin's (2006; henceforth "KR") theory of reference-dependent preferences. Following KR, our model has targets for hours as well as income, determined by proxied rational expectations. Our model, estimated with Farber's data, reconciles his finding that stopping probabilities are significantly related to hours but not income with Colin Camerer et al.'s (1997) negative "wage" elasticity of hours; and avoids Farber's criticism that estimates of drivers' income targets are too unstable to yield a useful model of labor supply. (JEL J22, J31, L92)
A key open question for theories of reference-dependent preferences is: what determines the reference point? One candidate is expectations: what people expect could affect how they feel about what actually occurs. In a real-effort experiment, we manipulate the rational expectations of subjects and check whether this manipulation influences their effort provision. We find that effort provision is significantly different between treatments in the way predicted by models of expectation-based, reference-dependent preferences: if expectations are high, subjects work longer and earn more money than if expectations are low. (JEL D12, D84, J22)
Recent discoveries in behavioral economics have led to important new insights concerning what can happen in markets. Such gains in knowledge have come primarily via laboratory experiments—a missing piece of the puzzle in many cases is parallel evidence drawn from naturally occurring field counterparts. We provide a small movement in this direction by taking advantage of a unique opportunity to work with a Chinese high-tech manufacturing facility. Our study revolves around using insights gained from one of the most influential lines of behavioral research—framing manipulations—in an attempt to increase worker productivity in the facility. Using a natural field experiment, we report several insights. For example, conditional incentives framed as both “losses” and “gains” increase productivity for both individuals and teams. In addition, teams more acutely respond to bonuses posed as losses than as comparable bonuses posed as gains. The magnitude of this framing effect is roughly 1%: that is, total team productivity is enhanced by 1% purely due to the framing manipulation. Importantly, we find that neither the framing nor the incentive effect lose their significance over time; rather, the effects are observed over the entire sample period. Moreover, we learn that repeated interaction with workers and conditionality of the bonus contract are substitutes for sustenance of incentive effects in the long run.
This paper was accepted by Gérard P. Cachon, decision analysis.
Contrary to theoretical expectations, measures of willingness-to-accept greatly exceed measures of willingness-to-pay. This paper reports several experiments that demonstrate that this "endowment effect" persists even in market settings with opportunities to learn. Consumption objects (e.g., coffee mugs) are randomly given to half the subjects in an experiment. Markets for the mugs are then conducted. The Coase theorem predicts that about half the mugs will trade, but observed volume is always significantly less. When markets for "induced-value" tokens are conducted, the predicted volume is observed, suggesting that transactions costs cannot explain the undertrading for consumption goods. Copyright 1990 by University of Chicago Press.
This study examines individual behavior in two well-functioning marketplaces to investigate whether market experience eliminates
the endowment effect. Field evidence from both markets suggests that individual behavior converges to the neoclassical prediction
as market experience increases. In an experimental test of whether these observations are due to treatment (market experience)
or selection (e.g., static preferences), I find that market experience plays a significant role in eliminating the endowment
effect. I also find that these results are robust to institutional change and extend beyond the two marketplaces studied.
Overall, this study provides strong evidence that market experience eliminates an important market anomaly.
Tournament incentive schemes offer payments dependent on relative performance and are intended thereby to motivate agents to exert productive effort. Unfortunately, however, an agent may also be tempted to degrade the production of his competitors in order to improve the own relative position. We investigate whether this sabotage problem is mitigated in a repeated interaction between the agents and the principal. As sabotage can hardly be observed in real-world organizations, we employ a controlled experiment. Our data provide clear evidence that agents' behavior is not only guided by competition between agents but also by the possibility of punishing the principal via sabotage.
Most real decisions, unlike those of economics texts, have a status quo alternative--that is, doing nothing or maintaining one's current or previous decision. A series of decision-making experiments shows that individuals disproportionately stick with the status quo. Data on the selections of health plans and retirement programs by faculty members reveal that the status quo bias is substantial in important real decisions. Economics, psychology, and decision theory provide possible explanations for this bias. Applications are discussed ranging from marketing techniques, to industrial organization, to the advance of science. Copyright 1988 by Kluwer Academic Publishers
Using data from the high-stakes 2013 Dubai professional tennis tournament, we find that, compared with a tied score, (i) male players have a higher serve speed and thus exhibit more effort when behind in score, and their serve speeds get less sensitive to losses or gains when score difference gets too large, and (ii) female players do not change their serve speed when behind, while serving slower when ahead. Thus, male players comply more with Prospect Theory exhibiting more loss aversion and reflection effect. Our results are robust to controlling for player fixed effects and characteristics with player random effects.
The first edition of this book has established itself as one of the leading references on generalized additive models (GAMs), and the only book on the topic to be introductory in nature with a wealth of practical examples and software implementation. It is self-contained, providing the necessary background in linear models, linear mixed models, and generalized linear models (GLMs), before presenting a balanced treatment of the theory and applications of GAMs and related models. The author bases his approach on a framework of penalized regression splines, and while firmly focused on the practical aspects of GAMs, discussions include fairly full explanations of the theory underlying the methods. Use of R software helps explain the theory and illustrates the practical application of the methodology. Each chapter contains an extensive set of exercises, with solutions in an appendix or in the book’s R data package gamair, to enable use as a course text or for self-study.
Although experimental studies have documented systematic decision errors, many leading scholars believe that experience, competition, and large stakes will reliably extinguish biases. We test for the presence of a fundamental bias, loss aversion, in a high-stakes context: professional golfers' performance on the PGA Tour. Golf provides a natural setting to test for loss aversion because golfers are rewarded for the total number of strokes they take during a tournament, yet each individual hole has a salient reference point, par. We analyze over 2.5 million putts using precise laser measurements and find evidence that even the best golfers\including Tiger Woods\show evidence of loss aversion.
Myopic loss aversion is the combination of a greater sensitivity to losses than to gains and a tendency to evaluate outcomes
frequently. Two implications of myopic loss aversion are tested experimentally. 1. Investors who display myopic loss aversion
will be more willing to accept risks if they evaluate their investments less often. 2. If all payoffs are increased enough
to eliminate losses, investors will accept more risk. In a task in which investors learn from experience, both predictions
are supported. The investors who got the most frequent feedback (and thus the most information) took the least risk and earned
the least money.
A hallmark result within behavioral economics is that individuals' choices are affected by current endowments. A recent theory due to Kőszegi and Rabin (, Quarterly Journal of Economics, 121, 1133–1165) explains such endowment effect with a model of expectations-based reference-dependent preferences. Departing from past work, we conduct complementary experiments to disentangle expectations—verified probabilistic beliefs held by subjects—from other features of endowment—such as “assignment” to a good—hence allowing us to compare the effect of expectations with that of other variations. While mere assignment can affect choices, we do not find a large role in the effect for Kőszegi–Rabin expectations.
Empirical studies analyzing the determinants of US presidential popularity have delivered quite inconclusive results concerning the role of economic variables by assuming linear relationships. We employ penalized spline smoothing in the context of semiparametric additive mixed models and allow for flexible functional forms and thus possible nonlinear effects for the economic determinants. By controlling for the well-known politically motivated covariables, we find strong evidence for nonlinear and negative effects of unemployment, inflation and government consumption on presidential approval. Additionally, we present new results in favor of nonparametric trivariate interaction effects between the macroeconomic covariables. Copyright © 2014 John Wiley & Sons, Ltd.
We analyze a two-player electoral contest game between a challenger and an incumbent. First, the challenger decides whether to choose a high-risk campaign (e.g., risky platforms, negative campaigning, an interactive Web technology) or a less risky one. In a second stage, both the challenger and the incumbent raise funds and invest in the electoral contest. The politicians differ in their fund-raising costs. According to theory, a high-cost challenger should choose high risk (gambling for resurrection). If the benefit of winning is sufficiently large, a low-cost challenger should take high risk either to discourage the incumbent or to prevent intense campaigning. Both effects are based on the fact that high risk campaigning reduces incentives to invest in the contest. In case of a rather small benefit of winning, a low-cost challenger should prefer low risk to avoid jeopardizing his competitive advantage. Our experimental findings show that gambling for resurrection plays a role. Taking low risk to preserve a competitive advantage is strongly supported by the data. However, reactions of low-cost challengers when facing high benefits of winning are heterogeneous.
MOST of the papers in this volume* implicitly or explicitly assume that rent-seeking activity discounts the entire rent to be derived. Unfortunately, this is not necessarily true; the reality is much more complicated. The problem here is that the average cost and marginal cost are not necessarily identical.
Penalized splines have gained much popularity as a flexible tool for smoothing and semi-parametric models. Two approaches have been advocated: (1) use a B-spline basis, equally spaced knots, and difference penalties [Eilers PHC, Marx BD. Flexible smoothing using B-splines and penalized likelihood (with Comments and Rejoinder). Stat Sci 1996, 11:89–121.] and (2) use truncated power functions, knots based on quantiles of the independent variable and a ridge penalty [Ruppert D, Wand MP, Carroll RJ. Semiparametric Regression. New York: Cambridge University Press; 2003]. We compare the two approaches on many aspects: numerical stability, quality of the fit, interpolation/extrapolation, derivative estimation, visual presentation and extension to multidimensional smoothing. We discuss mixed model and Bayesian parallels to penalized regression. We conclude that B-splines with difference penalties are clearly to be preferred. WIREs Comp Stat 2010 2 637–653 DOI: 10.1002/wics.125
For further resources related to this article, please visit the WIREs website.
From an employer's perspective, a tournament should induce agents to exert productive activities but refrain from destructive ones. We experimentally test the predictive power of a tournament model which suggests that (within a reasonable framework) productive and destructive activities are influenced neither by the number of agents taking part in the tournament nor by the fraction of the winner prizes. Our results clearly confirm that sabotage in tournaments indeed occurs. While tournament size has virtually no effect on behavior, a balanced fraction of winner and loser prizes appears to enhance productive activities.
The economic theory of the consumer is a combination of positive and normative theories. Since it is based on a rational maximizing model it describes how consumers should choose, but it is alleged to also describe how they do choose. This paper argues that in certain well-defined situations many consumers act in a manner that is inconsistent with economic theory. In these situations economic theory will make systematic errors in predicting behavior. Kanneman and Tversey's prospect theory is proposed as the basis for an alternative descriptive theory. Topics discussed are: undeweighting of opportunity costs, failure to ignore sunk costs, scarch behavior choosing not to choose and regret, and precommitment and self-control.
Life-cycle models of labor supply predict a positive relationship between hours supplied and transitory changes in wages.
We tested this prediction using three samples of wages and hours of New York City cabdrivers, whose wages are correlated within
days but uncorrelated between days. Estimated wage elasticities are significantly negative in two out of three samples. Elasticities
of inexperienced drivers average approximately −1 and are less than zero in all three samples (and significantly less than
for experienced drivers in two of three samples). Our interpretation of these findings is that cabdrivers (at least inexperienced
ones): (i) make labor supply decisions “one day at a time” instead of intertemporally substituting labor and leisure across
multiple days, and (ii) set a loose daily income target and quit working once they reach that target.
Data from downtown Boston in the 1990s show that loss aversion determines seller behavior in the housing market. Condominium
owners subject to nominal losses 1) set higher asking prices of 25–35 percent of the difference between the property's expected
selling price and their original purchase price; 2) attain higher selling prices of 3–18 percent of that difference; and 3)
exhibit a much lower sale hazard than other sellers. The list price results are twice as large for owneroccupants as investors,
but hold for both. These findings suggest that sellers are averse to realizing (nominal) losses and help explain the positive
price-volume correlation in real estate markets.
Does the period over which individuals evaluate outcomes influence their investment in risky assets? Results from this study
show that the more frequently returns are evaluated, the more risk averse investors will be. The results are in line with
the behavioral hypothesis of “myopic loss aversion,” which assumes that people are myopic in evaluating outcomes over time,
and are more sensitive to losses than to gains. The results have relevance for the equity premium puzzle, and also for the
marketing strategies of fund managers.
Much experimental evidence indicates that choice depends on the status quo or reference level: changes of reference point often lead to reversals of preference. The authors present a reference-dependent theory of consumer choice, which explains such effects by a deformation of indifference curves about the reference point. The central assumption of the theory is that losses and disadvantages have greater impact on preferences than gains and advantages. Implications of loss aversion for economic behavior are considered. Copyright 1991, the President and Fellows of Harvard College and the Massachusetts Institute of Technology.
Economic models can benefit from incorporating insights from psychology, but behavior in the lab might be a poor guide to
real-world behavior.
Several theories suggest that pay raises below a reference point will reduce job performance. Final offer arbitration for
police unions provides a unique opportunity to examine these theories, as the police officers either receive their requested
wage or receive a lower one. In the months after New Jersey police officers lose in arbitration, arrest rates and average
sentence length decline, and crime reports rise relative to when they win. These declines in performance are larger when the
awarded wage is further from the police union's demand. The findings support the idea that considerations of fairness, disappointment,
and, more generally, reference points affect workplace behavior.
I test the disposition effect, the tendency of investors to hold losing investments too long and sell winning investments too soon, by analyzing trading records for 10,000 accounts at a large discount brokerage house. These investors demonstrate a strong preference for realizing winners rather than losers. Their behavior does not appear to be motivated by a desire to rebalance portfolios, or to avoid the higher trading costs of low priced stocks. Nor is it justified by subsequent portfolio performance. For taxable investments, it is suboptimal and leads to lower after-tax returns. Tax-motivated selling is most evident in December. Copyright The American Finance Association 1998.
We exhibit a large class of simple rules of behavior, which we call adaptive heuristics, and show that they generate rational behavior in the long run. These adaptive heuristics are based on natural regret measures, and may be viewed as a bridge between rational and behavioral viewpoints. Taken together, the results presented here establish a solid connection between the dynamic approach of adaptive heuristics and the static approach of correlated equilibria. Copyright The Econometric Society 2005.
An axiomatic model of preferences over lotteries is developed. It is shown that this model is consistent with the Allais paradox, includes expected utility theory as a special case, and is only one parameter (" beta") richer than the expected utility model. Allais paradox type behavior is identified with positive values of "beta." Preferences with positive "beta" are said to be disappointment averse. It is shown that risk aversion implies disappointment aversion and that the Arrow-Pratt measures of risk aversion can be generalized in a straight-forward manner to the current framework. Copyright 1991 by The Econometric Society.
We develop a model of reference-dependent preferences and loss aversion where “gain-loss utility” is derived from standard
“consumption utility” and the reference point is determined endogenously by the economic environment. We assume that a person's
reference point is her rational expectations held in the recent past about outcomes, which are determined in a personal equilibrium by the requirement that they must be consistent with optimal behavior given expectations. In deterministic environments,
choices maximize consumption utility, but gain-loss utility influences behavior when there is uncertainty. Applying the model
to consumer behavior, we show that willingness to pay for a good is increasing in the expected probability of purchase and
in the expected prices conditional on purchase. In within-day labor-supply decisions, a worker is less likely to continue
work if income earned thus far is unexpectedly high, but more likely to show up as well as continue work if expected income
is high.
Analysis of decision making under risk has been dominated by expected utility theory, which generally accounts for people's actions. Presents a critique of expected utility theory as a descriptive model of decision making under risk, and argues that common forms of utility theory are not adequate, and proposes an alternative theory of choice under risk called prospect theory. In expected utility theory, utilities of outcomes are weighted by their probabilities. Considers results of responses to various hypothetical decision situations under risk and shows results that violate the tenets of expected utility theory. People overweight outcomes considered certain, relative to outcomes that are merely probable, a situation called the "certainty effect." This effect contributes to risk aversion in choices involving sure gains, and to risk seeking in choices involving sure losses. In choices where gains are replaced by losses, the pattern is called the "reflection effect." People discard components shared by all prospects under consideration, a tendency called the "isolation effect." Also shows that in choice situations, preferences may be altered by different representations of probabilities. Develops an alternative theory of individual decision making under risk, called prospect theory, developed for simple prospects with monetary outcomes and stated probabilities, in which value is given to gains and losses (i.e., changes in wealth or welfare) rather than to final assets, and probabilities are replaced by decision weights. The theory has two phases. The editing phase organizes and reformulates the options to simplify later evaluation and choice. The edited prospects are evaluated and the highest value prospect chosen. Discusses and models this theory, and offers directions for extending prospect theory are offered. (TNM)
Is Roger Federer More Loss Averse than Serena Williams?
- Nejat Anbarci
- Cagla Peren Arin
- Christina Okten
- Zenker
Anbarci, Nejat, K Peren Arin, Cagla Okten, and Christina Zenker. 2017. "Is Roger
Federer More Loss Averse than Serena Williams?" Applied Economics, 49(35): 3546-3559.
How the Structure of Competition Influences Performance in Professional Sports: The Case of Tennis and Golf
- David N Laband
Laband, David N. 1990. "How the Structure of Competition Influences Performance in Professional Sports: The Case of Tennis and Golf." Sportometrics, 133-150. College Station:
Texas A&M University Press.