Revisiting loss aversion: Evidence from professional tennis☆
Introduction
In their seminal paper regarding the Prospect Theory, Kahneman and Tversky (1979) argued that economic agents place a different weight on losses than on gains. Despite assigning more weight on losses than on gains, agents are risk seeking in the loss domain and risk averse in the gains domain. While numerous studies provided evidence that loss aversion exists, many scholars remain skeptical.1
More recently, Pope and Schweitzer (2011) use data from professional golf to demonstrate that players are indeed loss averse – as they are more focused while playing in the loss domain. We take the aforementioned paper as a starting point and test prospect theory in another setting – namely, in professional tennis. Contrary to golf where a player has full control of every shot, in tennis the only action where a player has full control is the serve, particularly the serve speed and placement/location. Specifically, players take higher risks when they serve faster and go for a precise location closer to the T-line.2 Given that the data on serve speed and location have recently become available by Hawk-Eye technology that measures the serve speed and location for selected matches, professional tennis provides us a unique opportunity to test prospect theory in a competitive setting, with large stakes and very experienced agents.3
We test the implication of our model that a server will be less risk averse in his/her serve speed and in trying to serve closer to the center of the T-line when behind in score than when ahead in score using novel data from the Dubai Duty Free Tennis Championships in 2013, by utilizing advanced semi-parametric econometric methods. We build upon Anbarci et al. (2017) by also explicitly taking the serve location into account. We can therefore test loss-aversion in a multi-dimensional setting with the use of our state-of-the-art empirical methodology that can account for interaction between our variables of interest. With the latter, we model multivariate and non-linear functional effects impacting the serve speed. Our results provide further evidence that loss-aversion significantly influences behavior, even after controlling for the stakes and experience. Moreover, we also document that, when the stakes are the highest (i.e., in the final), the serve speed is significantly higher. The latter implies that players take higher risks, even after controlling for all other factors. Finally, we detect remarkable differences for the loss aversion for males and females with respect to the situation within a game or within a set of the match.
The remainder of the paper is organized as follows: Section 2 provides a theoretical framework as a basis of our empirical investigation, Section 3 reviews data, Section 4 presents the empirical methodology, and the empirical results are provided in Section 5. Finally, Section 6 concludes.
Section snippets
Conceptual framework
Kahneman and Tversky's (1979) “prospect theory” triggered a vast literature by providing evidence on the prominence of “loss aversion” (i.e., on the phenomenon that individuals weigh (and respond to) losses more than identical gains with respect to a salient reference point). Loss aversion implies that agents’ “value function” is kinked at the reference point with a steeper gradient for losses than for gains; in addition, agents are risk seeking in the loss domain and risk averse in the gain
Data
The data consists of 32 matches of the Dubai Duty Free Tennis Championships in 2013 for which Hawk-Eye technology was available. Of these, 19 were matches by male and 13 by female players, respectively. It is a $2 million ATP (Association of Tennis Players) tournament, a so-called ATP 500 tournament, and a $2 million WTA (Women's Tennis Association) tournament, a so-called Premier Event.5 Due to
Methodology
We model the speed of serve t from server i to the receiver j for females byand for males by
Empirical results
Our discussion of the empirical results starts with Table 6, which provides coefficient estimates for the parametric parts of models (12) and (13). Our results, consistent with Anbarci et al. (2017), show that players serve significantly slower in their second attempt. We also document that male players, as expected, serve faster and the serve speed for both genders is significantly higher in the final round of the competition, when the stakes are the highest. This result is consistent with
Conclusion
In this paper, we provide additional evidence for the existence of “loss aversion” in the highly competitive context of professional tennis. Interestingly, the influence of loss aversion is visible in three different settings. First, when players are behind in score, we show that they are more likely to take risks in their serve speed. Second, we also document that all players are more willing to take risks when the stakes are highest; namely, they take more risks in the final, when also in
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The authors would like to thank Peter Dicce and James Smith for providing access to the data, as well as Zaid Al-Mahmoud and Blagoj Gegov for valuable research assistance.