Kahneman and Tversky (1979) introduced prospect theory as way to explain how people make decisions. They believed that when faced with choices, people are more focused on avoiding losses than on gaining something good. This goes against the usual belief that people are always looking for success and are willing to take risks. They came up with a way to measure this called the coefficient of loss aversion.
Some studies have shown that people tend to prefer taking a risk if the potential gain is 2.25 times greater than the potential loss (Abdellaoui, Bleichrodt, & Paraschiv, 2007; Riedl, Heuer, & Strauss, 2015). This has been tested in different areas, like economics and sports such as golf, basketball, and soccer
For example, in a study (Pope & Schweitzer, 2011) about golf, researchers looked at data from professional golf tournaments. They found that players were more accurate when trying to make a par putt (which keeps their score the same) compared to a birdie putt (which improves their score). In soccer, another study looked at how changing the scoring system from two points to three points for a win affected the number of tied games (Riedl et al., 2015). The researchers used the prospect theory and the loss-aversion coefficient to explain why the new rule didn’t completely get rid of tied games. However, if they hypothetically changed the rule to four points for a win, the effect of tied games would disappear, which aligns with the prospect theory.
Abdellaoui, M., Bleichrodt, H., & Paraschiv, C. (2007). Loss aversion under prospect theory: A parameter-free measure- ment. Management Science, 53, 1659 1674.
Kahneman, D., & Tversky, A. (1979). Prospect theory: An analysis of decision under risk. Econometrica, 47, 263 291. Pope, D. G., & Schweitzer, M. E. (2011). Is Tiger Woods loss
averse? Persistent bias in the face of experience, competi- tion, and high stakes. The American Economic Review, 101, 129 157.
Riedl, D., Heuer, A., & Strauss, B. (2015). Why the three- point rule failed to sufficiently reduce the number of draws in soccer: An application of prospect theory. Journal of Sport and Exercise Psychology, 37, 316 326.