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Loss Aversion Around a Fixed Reference Point in Highly Experienced Agents

51 Pages Posted: 21 May 2016 Last revised: 24 Jun 2017

Matt Goldman

Microsoft Corporation - Microsoft Research - Redmond; UC San Diego

Justin M. Rao

Microsoft Research; Microsoft Corporation - Microsoft Research - Redmond

Date Written: June 22, 2017

Abstract

We study how reference dependence and loss aversion motivate highly experienced agents, professional basketball players. Loss aversion predicts losing motivates if the reference point is fixed and losing discourages if it adjusts quickly. We find a “losing motivates effect” so large that an average team scores like a league leader when trailing by ten points. Optical tracking of players’ movements shows this effect comes through differential exertion of effort. Betting spreads and lagged score margin show that expectations do not influence the reference point, which is stable around zero, far less malleable than previously found in less experienced agents.

Keywords: reference dependence, loss aversion, expertise, behavioral economics

JEL Classification: D03, D84, C9

Suggested Citation

Goldman, Matt and Rao, Justin M., Loss Aversion Around a Fixed Reference Point in Highly Experienced Agents (June 22, 2017). Available at SSRN: https://ssrn.com/abstract=2782110

Matt Goldman (Contact Author)

Microsoft Corporation - Microsoft Research - Redmond ( email )

Building 99
Redmond, WA
United States

UC San Diego ( email )

CA
United States

Justin M. Rao

Microsoft Research ( email )

641 Avenue of Americas
7th Floor
New York, NY 11249
United States

Microsoft Corporation - Microsoft Research - Redmond ( email )

Building 99
Redmond, WA
United States

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