What is Loss Aversion?

Have you ever noticed that sometimes a player on a losing streak will make a sudden turnaround?  They will actually start performing better than they have for weeks?  This sometimes happens with teams as well—though not as often.  Losses seem to be more demoralising for groups.  But sometimes even a team will suddenly give an extra push.  When this happens, it clearly isn’t a fluke - it’s a concentrated effort. 

These unexpected reversals can take punters by surprise.  In fact, if you happen to wager on a player or team on a losing streak and they actually go on to win, you could end up making out quite well.

All of this begs the question: Why do losers suddenly start winning?  Moreover, why does it seem like their skill and technique actually improves? 

One possible explanation could be what is known as loss aversion.

Loss aversion is just what it sounds like.  It is the psychological term for an adverse attitude toward loss.  Nobody enjoys failure.  For an athlete or a team, it can be devastating, especially as losses stack up one on top of another.  If the next loss is going to result in a team losing its chance to compete in a championship, players may decide to fight extra hard.  When they do this, they may suddenly start playing with a level of skill they seem to have misplaced until recently.

The impact and role of loss aversion varies from sport to sport.  Oddly enough, you can sometimes even see it when players are winning.  In fact, loss aversion can ironically lead to a lower score.

Two examples we can look at are golf and football. 

Loss Aversion in Golf

In golf, we can look at a study of 2,525,161 putts from the PGA Tour (2004-2009).  That’s quite a lot of data.  Researchers Maurice Schweitzer and Devin Pope discovered something very interesting:

• Golfers successfully completed 82.9% of puts for par.

• They only successfully completed 28.3% of birdie puts.

In case you are not a golf fan, a “birdie” is finishing a hole one stroke under par.  In other words, golfers who knew they could at least meet par were quite likely to perform with the skill necessary to do so.  Yet they systematically seem to avoid scoring a birdie despite the fact that a birdie is technically better.

What is going on here?  Pope and Schweitzer determined that golfers with the chance to score a birdie actually avoided taking the chance because they were afraid of having a bogey.  A “bogey” takes place when a golfer takes one stroke more than expected. 

In short, loss aversion leads golfers to play conservatively and take par if they foresee the possibility of a bogey.  So they may actually end up with a worse score than they are capable of. 

Loss Aversion in Football

A similar effect takes place with football.  When a team is winning a match, they will often switch strategies during the final minutes.  Whereas they may have been aggressively on the offense during most of the match, their fear of losing leads them to get extra-protective of their goal.  They switch primarily to defending.

This is rather fascinating, because the offensive strategy was paying off before, and was actually the strategy that (probably) won them the match.  If they had stuck with it, they could have achieved a higher score.  Instead, they forfeit the chance to score more points in order to protect what they had already achieved. 

There may be other physical and psychological considerations that play into a decision like this.  Players are fatigued after a long match and want to conserve their energy. 

Of course, ironically, this may occasionally play against them.  Because they are stronger at playing offensively, they may actually hand the advantage to the other team without realising it.  This may account for some last-minute reversals in scores.

Loss aversion is definitely real, but as you can see, it can impact players and teams in many different ways.  It can lead to more aggression or less and may cause a rise or decline in skill and judgement.  When you are betting on a team or player on a losing streak, be sure to think of the myriad ways in which loss aversion may impact strategy and performance.  A great practice is to look back over that player or team’s history to see what they have done in similar situations.  Chances are good (especially with individual players) that you will see a repeat of certain behaviours.