Loss Aversion and Sports Betting
Regardless of whether it’s a tennis star, a soccer player or a rookie golfer, all sportspersons hate losing. It’s actually a given in the field of sport! However, are you aware that athletes actually give better performances in situations wherein they are working extra hard to avoid defeat, instead of when they’re simply aiming to win?!
Loss aversion is the psychology at the back of this phenomenon. It’s fairly simple to understand – Humans don’t like things getting taken away from them! In fact, sportspersons strive extra hard and go that extra mile if an outcome related to their encounter frames them as the losing party. Plenty of research has been carried out on this subject, however, the biggest real world example in this regard is found in relation to the PGA Tour, wherein you can clearly find the effect of loss aversion on the games of professional golfers.
Researchers Maurice Schweitzer and Devin Pope thoroughly studied 2,525,161 putts scored on the PGA Tour between the years 2004 and 2009. Their observation was that there were a fairly disproportionate number of putts scored for par compared to the birdie attempts. There was an impressive 82.9% success rate of putts for par, compared to a dismal 28.3% success rate for birdies.
Quite obviously, not every putt is equal, and it’s highly likely that a large number of birdie attempts were made from difficult distances compared to the par attempts. But, even after averaging out the distances, the researchers found that golfers had putted 3.7% more shots for par compared to birdies.
It was theorised that it was loss of version at play in such situations. Although both situations – missing par putt and missing a birdie mean that the player would be one shot short, sinking a birdie is always seen as a point won at psychological level, putting him/her one-under. A bogey on the other hand is always viewed a point lost (as it leads to one-over), hence the golfers normally up their game in such losing situations.
Aversion to loss also results in another important golf-specific situation. Whenever a player misses a birdie putt by a short distance, he’d be in a more advantageous position compared to a situation where he overhits (which could potentially be far worse).
Loss aversion in other sports
Although loss aversion can be easily quantified in the game of golf, it’s a phenomenon which can have a major impact on other situations and sports as well. A clear example of it can be seen in the final moments of football matches.
Whenever a team is winning, it may tend to get into defensive mode during the final minutes of the game, instead of attacking to extend its lead. You’ll see this happening regardless of the fact that league structures reward football teams that win with bigger goal differences. Furthermore, aggregate scores can prove to be very vital in the later stages of the league.
This also goes quite opposite to common sense sometimes when teams who’ve been performing particularly well suddenly change their tactics, regardless of their original strategy which had given them an advantage to start with. Any change in tactics is normally due to a human heuristic referred to as endowment theory. As per endowment theory, a team or a player has a tendency of becoming even more averse to loss than he/it already is if he/it has already scored some gains. Hence, no matter that two teams may start equally at 0 – 0 score line, whenever any of them scores a goal, that team has a tendency of reframing the match based on new terms. Having gained 1 – 0 advantage in the match, that team’s desire of scoring more goals may decrease, because winning with two goals is not a lot more valuable compared to winning with one goal, however, both these outcomes are much more valuable compared to a draw.
Aversion to loss is also behind the tactics employed by teams during the first leg of two-legged ties. You’ll see away teams having a tendency of approaching the game more defensively, going for counter-attacks, while the home teams may try extra hard to avoid conceding away goals which are valued more than home goals.
About reference points
Trying extra hard to avoid conceding goals in two-legged ties is an excellent example of how it’s not only the end result that gets influenced by the loss aversion, the desired outcome gets impacted as well.
In case a team expects to win a game with a 3 – 0 score line, that side may be loss averse to any other outcome than that. Why this is so? Because that team would treat 3 – 0 score line as the reference point, and would be disappointed if it scores anything lesser than that. In the same way, if the home team is very serious about avoiding conceding any goals in a cup-tie, the loss aversion wouldn’t just be applicable to the outcome of that match, but also to conceding of a goal.
Loss aversion in tennis matches
You can see some of the biggest loss aversion examples in the game of tennis, normally twice in every service game. All major tennis stars, both in the men’s and women’s tennis game, opt for slower second serves in order to avoid the possibility of a double fault and automatic loss of a point.
But, while no more than 65% of the first serves are successful, only 75% of the first serve points go in favour of the server. However, the result is pretty different in case of second serves – 50/50! It implies that the possible win percentage in case of a slow second serve and a fast first serve is 64.5%. The potential winning percentage becomes 65.8% if the player uses two fast serves. Such loss aversion actually costs tennis players 8.7% chance of winning a point on their serves.
Sports betting and loss aversion
Please keep in mind that loss aversion isn’t something that is limited only to soccer teams, professional golfers and tennis players. Sports bettors may also get influenced by this phenomenon and make irrational decisions as a direct result of it.