Introduction

It is not uncommon to hear a person say that they hate losing more than they appreciate winning. Many people actually find losing to be more psychologically impactful and influential when compared to winning. This phenomenon is a result of the theory of loss aversion, which takes effect in almost everything we do as consumers. This paper will examine loss aversion and how professional golfers are affected by this phenomenon while participating and competing at the highest level. The paper will also address ways to reduce the impact of loss aversion and further recommend ways for the people to understand the phenomenon and improve decision-making .

Loss Aversion Explained

Prospect theory was originally founded and named by Kahneman and Tversky, which included the ideas of both loss aversion and the endowment effect and their ability to influence consumers and overall consumer behavior. This paper will narrow the lens of prospect theory to only address loss aversion and its more specific effect on consumer behavior. Loss aversion is the phenomenon that people are affected more by a loss than by a gain of the same value. It is said that when people already have an item, typically money, they value it to a higher standard and are less willing to give it up even if it meant possibly earning a net gain of slightly more.¹ It is thought that the pain of losing is seen as twice as powerful psychologically in comparison to the pleasure of gaining the same object or money. It is also believed that people are more willing to engage in risk if the that risk will avoid a loss rather than result in a gain.² To expand on that idea, even if something were to have the same value, consumers would feel much more strongly and bear more pain when losing that same value than if they were to gain that same thing.  

Examples and Errors in Decision Making

An example of this phenomena taking effect is when people are offered a prepaid commission for selling televisions versus earning commission on each television sold. Even though choosing to make commission on a per-TV basis rather than a prepaid amount of money would result in more profit, most salespeople tend to take the money upfront because it changes their level of ownership.¹ Because of the fact that they already possess the money, they are less willing to give it up even though earning commission for every TV sold would result in a $2 further net gain. The salespeople feel more strongly not losing the $10 in the prepaid commission scenario than achieving this overall net gain of $12.¹ This error is made more often than not in human behavior because of the attachment to already possessing an item and the fear and anxiety of losing that item weighs heavier, with much less regard to the possibility of gaining more.

Another example would be an employer adding 10% of an employee’s salary in a long term saving account.¹ If the employee only choses to match with 5% of their salary, they will see the company remove the extra 5% and meet them in the middle. This principle off loss aversion is that money people do not get is not valued the same as money that is taken away, resulting in a larger psychological impact.¹ In this case, employees are leaving money on the table but fail to recognize it until the money is already existent and then taken away. Ultimately, loss aversion results in a multitude of human errors, leading to less profitable and practical decisions and allowing for emotion to overwhelm sensible choices.

Applying Loss Aversion to Professional Golf

The Professional Golf Association (PGA) holds a multitude of events (40-50 per year) with over 100 golfers participating in each of these events³. These professionals are elite at what they do, and it is no surprise that loss aversion, a part of behavioral economics, effects these golfers during their tournaments and play. Whether it be on the green attempting to make putts specifically or when holes are rated with a lower par (par 4 versus par 5), decisions, aggressiveness of shots, and overall success can be seen through loss aversion.

Multiple studies have examined the role of loss aversion in the way professional golfers approach their game. Because golf courses around the world are rated differently, the common reference point is par. Golfers move up and down from that score, going above par and below par with the goal of shooting the least amount of strokes as possible. Golfers make decisions based on aggressiveness and their own perception of par and what they may gain or lose from every single shot. The following sections of the paper will go on to explain the different ways loss aversion appears in the game of golf, both in putting and the approach to a hole’s rating, identifying why golfers approach the game in this way, and providing multiple recommendations to combat the issue of loss aversion in golf.

The following graph represents the commonality of a golfer’s emotional response to making a one shot gain or loss.⁴

Figure 1. Value Function of Loss Aversion in Golf

Value Function Interpreted

As the figure demonstrates, golfers feel more pain when going a stroke above par rather than going a stroke under par. It is also important to note that this graph has par as the reference point in which golfers can gain and lose. This figure shows how players are more likely to focus more on par putts and putts that put players above par to avoid suffering further loss.⁴

Putting

According to loss aversion, golfers, in theory, should place more emphasis on putts that would result in a loss (gaining a stroke) versus a gain (losing a stroke). Although golfers strive to hit all putts accurately, findings that have controlled for distance, line, slope, and other important variables when it comes to putts, golfers do hit birdie putts (gains) less accurate and less hard than par putts (losses).⁴ The golfers, even in these very high-stakes settings, are more concerned with saving par, which would otherwise result in a loss barring a miss, then making birdie, which would result in a gain. According to this information, golfers on average miss 2-4% more birdie putts than par putts, which results in higher scores and worse performance, ultimately resulting in finishes lower on the leaderboard and less prize money.⁴

Hole Ratings

Another study was conducted at two golf courses who have hosted the prestigious U.S. Open on multiple occasions, Pebble Beach Golf Club and Oakmont Country Club. Over the course of time, the makeup of holes have not been altered materially, but only changed from a grade of par 5 to par 4.³ Even through the advancement in technology and player skill, golfers were still more susceptible to decrease their scores on the two holes that were changed by par rating and not materially while no other holes experienced this same, loss averse trend.³ Because the reference point of the holes in question changed, the golfers approach to the hole did as well, so that they would experience less of a loss.

Recommendations

The following recommendations are specific approaches golfers should take to remove loss averse decisions in application to their game.

1. Players should base their decisions and aggressiveness on overall score and not the reference point of par. Removing par as the baseline will help golfers shoot lower scores and focus on gaining putts, like birdies, rather than saving par.
2. Players need to remove emotion from certain shots. It would be more beneficial to look at every shot as the same and strive to finish in the least amount of strokes possible, without putting extra emotional strain on specific shots.
3. Finally, each shot/stroke should be looked at purely analytically. Golfers understand their own game well and have caddies to help. Approaching each shot by understanding a gain will outweigh a loss in terms of final score and prize money will increase overall success.

Conclusion

Loss aversion plays a significant role in most of human behavior but also in the way that professional golfers approach their own game. Golfers are more prone to make putts that save par rather than gaining putt like a birdie.⁴ Golfers are also more susceptible to shoot lower scores on holes rated of a par 4 than a par 5 even without the hole being materially changed.³ However, by changing the reference point, removing emotion, and taking a more analytical approach to shots, golfers can remove loss aversion in their play.

References

1. Luong, L. (2013, April 7). 2.6 Loss aversion and the
   endowment effect [Video file]. Retrieved from
   https://www.youtube.com/watch?v=YpiGVWO-C64
2. Loss aversion. BehavioralEconomics.com | The BE Hub. (2022, September 14). Retrieved from https://www.behavioraleconomics.com/resources/mini-encyclopedia-of-be/loss-aversion/ 
3. Elmore, R., & Urbaczewski, A. (2021). Loss Aversion in Professional Golf. Journal of Sports Economics, 22(2), 202–217.
4. Pope, Devin G., and Maurice E. Schweitzer. (2011). Is Tiger Woods Loss Averse? Persistent Bias in the Face of Experience, Competition, and High Stakes. American Economic Review, 101(1): 129­–57.