How Loss Aversion Screws Up Your Golf Game

This phenomenon, first demonstrated by Amos Tversky and Daniel Kahneman, is known as loss aversion, and it shows up everywhere.

Kahneman, in his book Thinking, Fast And Slow, describes how economists Devin Pope and Maurice Schweitzer identified loss aversion on the golf course:

Every stroke counts in golf, and in professional golf every stroke counts a lot. According to prospect theory, however, some strokes count more than others. Failing to make par is a loss, but missing a birdies putt is a foregone gain, not a loss. Pope and Schweitzer reasoned from loss aversion that players would try a little harder when putting for par (to avoid a bogey) than when putting for a birdie. They analyzed more than 2.5 million putts in exquisite detail to test that prediction.

They were right. Whether the putt was easy or hard, at every distance from the hole, the players were more successful when putting for par than for a birdie. The difference in their rate of success when going for par (to avoid a bogey) or for a birdie was 3.6%. This difference is not trivial. Tiger Woods was one of the "participants" in their study. If in his best years Tiger Woods had managed to putt as well for birdies as he did for par, his average tournament score would have improved by one stroke and his earnings by almost $1 million per season.

In short, you should try harder all the time.

Thinking, Fast And Slow also discusses the cognitive failings of HR departments, pundits, amateur investors, and pretty much everyone.

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