Golf_human capital formation...000019059879XSmall

Bogeys, Birdies and the Eurozone

by Elaine Schwartz    •    Jun 1, 2012    •    231 Views

Analyzing more than 1.6 million putts, including Tiger Woods, 2 University of Pennsylvania economists concluded that professional golfers putt better when avoiding a bogey (a stroke over par) than when trying for a birdie (a stroke under par). The reason? Our brains are wired to worry more about loss than gain.

Writing in The New Yorker, financial journalist James Surowiecki relates loss aversion to Greece, Germany, and eurozone negotiations. Surowiecki points out that avoiding a Greek default and departure from the euro zone–a Grexit–would have a beneficial ripple. The Greek economy, the peripheral eurozone nations like Italy and Portugal, banks and Germany would benefit.

Rather than working together, though, Greece and Germany are “fixated on what is fair.” And, because a fairness focus always biases us toward ourselves, our self-interest and what we perceive is right, neither Greece nor Germany is emphasizing the big picture. One sees austerity as huge unfairness. The other sees bailout as unfair assistance. Perceiving its own position as fair, each is engaging in loss aversion when it refuses to compromise.

Surowiecki says Europe needs to aim for what is possible–not what is fair.

And that returns us to golf. What is possible is like the birdie. It is a gain–a gain that golfers and politicians and voters pursue less vigorously than the bogey.

Starting with economics Nobel laureate, psychologist Daniel Kahneman, and his recent book, Thinking Fast and Slow, you might enjoy reading about the behavioral implications of loss aversion (Chapter 28). Particularly interesting, in How We Decide, journalist Jonah Lehrer takes loss aversion to investing. Also, the University of Pennsylvania putting study, “Is Tiger Woods Loss Averse?” is here and The New Yorker article on fairness in here. Keeping loss aversion in mind, here is a totally different perspective from CNN that says the eurozone solution is Germany’s departure and here, The Economist takes us to Spain’s banks.

« »