Loss Aversion Around a Fixed Reference Point in Highly Experienced Agents

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