Tag Archives: Tiger Woods

Loss Aversion and the Big Picture: List of Biases in Judgment and Decision-Making, Part 2

I think I’m going to make a habit of posting something new to my series on biases in judgment and decision-making every Monday. Last Monday, we looked at sunk costs. Today, we’re going to look at loss aversion.

As much as I can, I’m trying to write about the different biases by themselves. Sunk costs are closely associated with loss aversion, so I could have included it in the first post. Similarly, the endowment effect is closely associated with loss aversion, so I could have wrote about it here. Learning about the biases one at a time may make it easier to focus on that bias for that week. So, without further adieu: loss aversion.

Loss aversion is the idea that we’d rather avoid losses than reap rewards. Put more simply: we’d prefer to not lose something than acquire something. Like we did with the sunk cost fallacy, let’s look at some examples of loss aversion to give us a better understanding of this bias. The implication of loss aversion is that someone who loses $100 or $1000 will lose more satisfaction (or be unhappier) than someone who gains $100 or $1000 will gain satisfaction (or be happier). If we think about a continuum where both of the people in the above example start at 0, the person who loses money will have an higher absolute number (with regard to their satisfaction) than the other person. This is a rather basic example, so let’s look at something a little juicier: golf.

In golf, the difference between winning and losing is sometimes one stroke (or one putt). A short excerpt from Kahneman’s book, Thinking Fast and Slow:

Every stroke counts in golf, and in professional golf every stroke counts a lot. 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. [Emphasis added]

That’s an incredible statistic. With the only difference between putting for par and putting for birdie the fact that one would “lose” a stroke and professional golfers are 3.6% better at putting for par? Wow! As the excerpt said, that accounted for $1 million per season for Tiger Woods in his best years.

Ways for Avoiding Loss Aversion

As with the sunk cost fallacy, one of the most important ways to avoid loss aversion is to recognize it. That is, to know that humans have a tendency for loss aversion is an important first step in not falling into the trap of loss aversion.

1) What’s the big picture?

In our example of golf, that might mean knowing where you are in relation to the other players your competing with in the tournament (rather than where your ball is relation to the hole and what specific stroke you’re about to hit). In business, one might examine a decision about one business unit in relation to the entire company (rather than looking myopically at the one business unit).

2) Am I afraid of losing something?

This may seem like an obvious solution, but it’s pretty important. If before making a decision you can think to yourself (or have your team ask itself), “am I afraid to lose something here?” You might find that you are and it could serve to help you or your company avoid falling into the trap of loss aversion.

3) Do you really expect to never lose anything — ever?

Loss is inevitable. Sometimes, you won’t make that par putt (or that birdie putt). Sometimes, when you negotiate a deal, you won’t get the best deal. Sometimes, the decision to sell that business unit might result in losses somewhere else. If you can come to grips with the fact that every decision you make won’t be perfect and that sometimes you will lose, you may begin to shift your expectations about loss.

The Psychology of the Petraeus Affair

I’ve had this link on my list of things to write about for a few days and even though it’s not the most compelling thing to write about right now, I wanted to make sure I wrote about it before it got to be too far away from the incident. The link is a panel discussing the motives behind the Petraeus affair.

The only thing I’ve written so far is my bafflement with Petraeus’ forced resignation “because of possible blackmail.” When I heard about this discussion, I thought I should also add something to the discussion. Some of the reasons that were discussed in the video/article:

  • Invincibility
  • Self-sabotage
  • “God made us this way”
  • “Men are simply no good”
  • Opportunity
  • Risk-seeking behavior (paired with the first one, invincibility)

While those are all plausible explanations, some carry more weight than others. Better yet, I think that there is an important one missing from this list: drive.

As the panelists tell us, this is not the first time that we’ve seen high-profile people and infidelity. In fact, this isn’t even something that’s limited to politicians — athletes do, too. Both Kobe Bryant and Tiger Woods come to mind as two very high-profile athletes who’ve publicly admitted to infidelity. (I say publicly admitted because who knows how many other accounts of infidelity there have been that the public has not been privy to.) In researching for this article, I came across a good summary of the literature on infidelity in a post about Tiger Woods:

The precursors to cheat could be summarized as:

  • Significant, ongoing, unresolved problems in the primary, long-term relationship or marriage
  • A significant difference in sex drive between the two partners
  • The older the primary relationship
  • A greater difference in personality than perhaps the partners realize
  • And to a far lesser extent, perhaps some theoretical, evolutionary remnants that may have reinforced multiple partners over monogamy (although this is just a hypothetical argument that would be difficult to disprove)

While these are some helpful (in understanding) precursors to cheating, there’s still one more I want to discuss — personality. Yes, personality is named in this list, but I don’t think that it adequately gets to the point I’d like to make.

File:Triangular Theory of Love.svg

Think about the kind of personality required to make it to the levels that Petraeus, Woods, and Bryant have. It takes quite a bit of discipline, dedication, and perseverance. These men didn’t just wake up one day at the pinnacle of their professions. They worked hard for it. While, of course, talent plays a big role in being able to make it to the upper-echelon, drive also plays a big part, too. It is this drive that I think plays a large part in infidelity. It’s almost as if we could theorize that there’s a triangle.

In fact, it reminds me of Sternberg’s triangular theory of love (pictured above-left). I would argue that drive is one of the vertices of a triangle, invincibility is another, and opportunity is the third. Without these three things present, one won’t necessarily cheat. Similarly, with these three vertices present, one won’t necessarily cheat. Though, when these three vertices are present, I would bet that the incidence of cheating is elevated.