Pope and Schweitzer (2011) on Tiger Woods and Persistent Bias

Devin G. Pope and Maurice E. Schweitzer, “Is Tiger Woods Loss Averse? Persistent Bias in the Face of Experience, Competition, and High Stakes.” American Economic Review 101: 129-157, February 2011.

• The notion of a reference point is central to prospect theory, but how can reference points be identified? In the game of golf, the idea of “par” provides a sort of natural reference point. 

• Prospect theory suggests that people view the outcomes of risky decisions not in overall terms, but as gains or losses relative to their reference point. To perform worse than par (a bogey or double bogey, say), is a loss relative to the reference point of par. To perform better than par (an eagle or birdie, say) is a gain relative to the reference point. 

• Prospect theory suggests that people are loss averse, being more concerned with negative departures from the reference point than with “equivalent” upward departures. Missing a putt for par will result in a loss (relative to the reference point), whereas missing a putt for birdie will still, in itself, not cause a loss. 

• Imagine two otherwise identical putts, one for birdie and one for par. In terms of monetary payoffs, both are identical for a given golfer – but they are not identical in terms of the gains/losses coding. Professional golfers perform better at such putts when they are for par than when they are for birdie. That is, the disutility associated with being on the loss side of the ledger seems to induce improved performance from golfers. A golfer who performed as well on birdie putts as he or she did on identical par putts would earn tens, even hundreds of thousands of dollars more per year. 

• Professional golfers appear to be loss averse as opposed to “fully rational,” even though they are experienced actors in a highly competitive setting, and where the monetary stakes associated with departures from rationality are quite significant.