Prospect Theory at the U.S. Open

Lane Wallace Jun 19 2009, 10:15 AM ET

It's nice to know Tiger Woods is human, after all. Woods and all the other golf pros who, if the rain ever stops, will walk the links of the U.S. Open this weekend, planning each shot with cool, calculating eyes and a seemingly unflappable mask of control.

Looking at any of them squatting down on the green, putter in hand, analyzing the distance and slope from their ball to the hole, it wouldn't appear that they're about to behave in a fundamentally irrational manner. But according to a new study by two professors at the University of Pennsylvania's Wharton business school, they are. Proving, once again, a Nobel Prize-Winning theory of economics.

In 1979, two psychologists, Daniel Kahneman and Amos Tversky, came up with a new theory about how humans make choices when faced with situations where there is risk or an uncertain outcome involved. Until then, models assumed humans made rationally balanced choices when it came to risk and payoff -- especially in financial transactions. Kahneman and Tversky's Prospect Theory argued that humans didn't actually behave that way. In reality, people were far more averse to loss than they were inclined toward gain. So if you offered someone a chance to win or lose money based on the flip of a coin, and they stood to lose $10, you'd have to offer them the chance of winning at least $20 before they'd take the bet. This explains why people will buy insurance ... and also buy a lottery ticket.

What does this have to do with golf? Well, according to an article in the New York Times, Wharton professors Devin Pope and Maurice Schweitzer studied 1.6 million putts (yes, you read that number right) made by pros on tour and found that golfers were more averse to getting a bogey (one over par) than they were motivated to get a birdie (one below par).

Pope and Schweitzer came to this conclusion after looking at "identical" putts made by the same golfer and discovering that they missed more often if it was for a birdie than if it was for par. The percentage difference -- between .7 and 6.3%--isn't huge (Woods scored 3.6% more misses on birdie shots). But what makes it interesting is how quickly the golfers agreed that their behavior varied, depending on the stakes. Justin Leonard was quoted in the article as saying "When putting for birdie, you realize that, most of the time, it's acceptable to make par."

In other words, they're willing to give up the "win" of a stroke saved. But faced with the prospect of losing a stroke, with the negative label of "bogey" attached to their performance, they focus more, play more aggressively, and don't subconsciously settle for just "getting it close." They go for it ... and they make it more often. They are more motivated to avoid a perceived loss than to gain a perceived reward. Which, although the Times article didn't make any reference to Prospect Theory per se, is exactly what Kahneman and Tversky would have predicted.

Now here's the really irrational part of that, as anyone who plays golf has undoubtedly already figured out. Golf games are won and lost based on the total number of strokes over 18 holes. So a stroke lost is a stroke lost, regardless of what it's labeled on any given hole. And yet, even though the golfers acknowledge this fact, and how counter-productive that makes their mind-set, they can't seem to use that rational information to overcome their irrational responses on the green.

Which may not be rational, but makes perfect, logical sense to any human who's ever avoided staying on the 13th floor, stepped around a black cat, or walked a little more carefully on Friday the 13th. Our minds have a funny way of playing games with us. Even when ... or, maybe even especially when ... we're involved in playing a game.