"Is Tiger Woods Loss Averse" and its relation to poker

Currently reading a research paper released in June (http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1419027). The paper uses golf as the subject, but the underlying principle applies to almost to many other areas, including poker.. It's provides evidence from over a million putts on the PGA, to suggest that even seasoned, experienced experts are loss averse. In other words, they focus and perform better when facing a possible poor result or "loss" (in this case, when putting for par), than they do when facing a very good or "winning" result (in this case, a birdie putt). Also, they are more willing to take higher risks when behind than when ahead. This can be immediately thought of in poker regarding typical player's decision-making behavior when way down vs. way up. People typically gamble more (i.e. take more risks) when trying to break-even than they will when they are way up during a session. Often a player that is way up will pass on high risk situations even though that situation may be very +EV, whereas the same player would get involved if way down. He is loss averse, and just as the paper suggests for golf, this mistake is very costly.

This paper isn't the first to suggest this when referencing economic models and how an agent's decisions are affected when faced with different levels of risk. The first was called the Prospect Theory (http://en.wikipedia.org/wiki/Prospect_theory). However, this paper suggested that these affects were diminished in agents of great experience. In other words, pros on the PGA Tour would not be susceptible to being loss-averse and their decisions would be consistent. The current paper uses all the evidence of putts to try to prove this wrong; that even highly experienced agents were still loss-averse and it is costing them wins and money.

On last thing to mention in this post that was pointed out in my limited reading so far is that the researchers believe people put a lot of value and focus in something that is really irrelevant: Par. It's just a reference point that people judge their success by, that really has little meaning in how they are and should be playing. This is why they suggest people focus more on the par putt than the birdie putt. It's the fear/pressure/etc of going over par and taking, what they would consider, a loss. They aren't faced with this during a birdie putt. This same imaginary, irrelevant reference point that everyone looks at to judge their level of success/failure exists in poker. It's the break-even point.

A session is far too small a sample for a win or loss to be evidence of performance for the most part. The volatility has not had time to even out and can deviate greatly from the mean. However, it is very hard for experienced players and especially novice players to separate their results from their performance in the short term. Win a lot and you feel like you are playing great. Lose a lot and you will feel like you are playing terrible. The truth may be the complete opposite.

Even though this reference point is irrelevant, we falsely give it value and it, in turn, affects our decisions. Something that has no value in decision-making but still affects our decisions is not optimal and leads to inconsistencies and mistakes. An easy example of this is passing on a +EV spot when we are way up because a loss would leave us break-even or down (i.e. high risk and we are now risk averse), even though we would take that spot at other times just because we are in a different position with regards to the irrelevant reference point (like when we are down or even) . We cost ourselves money and make poor decisions just because we are loss averse.

I know I suffer from this loss aversion. It's not something this just applies to a person in one realm, but follows through to other challenges. Often in other games, when way ahead, I freeze up. Since I'm watching the SF4 Evo championships right now, I'll use Street Fighter as an example. Some rounds I'll be far ahead of my opponent, crushing him the entire time. But if I'm about to get a perfect or sometimes just win by a lot, my game will change and I'll start to get destroyed. It doesn't happen a lot, but when it does, it definitely makes me sit up and think "WTF IS HAPPENING?!" I instantly go from playing well and aggressive to playing too safe, too careful, and end up playing much worse than I should. Similar things have happened in MTG with an X-0 record. It seems like when it does happen, as soon as I lose, the pressure is off and I'm back to feeling comfortable and playing more aggressively for the win. This fits right in with the Prospect Theory and a person's risk aversion when "gaining", versus their risk tolerant nature when "losing."

Lately, I've been reading a lot about clutch players and competitors. These are the guys that perform the best under pressure. It's a characteristic I want to develop and it is definitely, in some way, related to this study.

I'm going to continue to read the article and try to post up a summary of each section as I go.

P.S. I keep coming up with other ways this sort of thing affects me. Another way is, on a smaller level, when I start with a premium starting hand. Often, even with AA, I'm nervous when called of losing to a set or two pair. I feel the anxiety, especially when called on the flop, but have to fight back the want to check on the Turn. This is even more true with something like AQ with TP on the flop. It's true in Alan's game as well when called by many people. Instead of focusing 100% on the most EV plays, part of my focusing is almost dividing with the fear of losing with a strong hand. I don't have the same feeling if I have 33 or 57s. I start with a premium hand, I'm ahead, and therefore loss averse, even though I haven't actually won anything yet. It is almost like the though is "I have a good hand, I SHOULD win." I know it's bad thinking and don't consciously do it, but it might be very deep rooted and still having an very real effect. It's definitely a psychological barrier I have to get over. Fortunately, being aware of it is the first step to getting rid of it.