Loss Aversion in Fantasy Baseball

7 04 2010

In behavioral economics, loss aversion refers to a bias where people prefer a chance of gain over the combination of locked-in gain and chance of loss, even though they have the exact same results. For example, consider the following cases:

Case 1: Choose between receiving $100, or having a 50% chance of receiving $200 dollars.
Case 2: You receive $200. Then, you choose between losing $100, or having a 50% chance of losing $200 dollars.

Mathematically, the two cases are identical. Yet experimentally, when presented with offers as written, people tend to prefer the second option in case 1, and the first option in case two. Basically, people like the feeling of upside risk, knowing they stand to gain extra, but don’t like the feeling of downside risk, or knowing they might lose extra.

In fantasy sports, this bias pops up in the strong preference for younger players over older players. For instance, consider these two options:

Option 1: A young outfielder, with little major league experience, has a 50% chance of becoming a very good player this year, but otherwise will have little or no value.
Option 2: An old outfielder, who has been very good for many years, has a 50% chance of providing little or no value this year, but otherwise will remain a very good player.

Again, these two options are mathematically identical, but there’s a significant preference for Option 1 among fantasy players. Spotting these opportunities is a key way to gain edge in fantasy sports, and a key reason why my teams tend to include players at the tail-end of their career.

For instance, this year I have one team with an outfield of Bobby Abreu (36 years young), Raul Ibanez (38) and Johnny Damon (37), with Chipper Jones (38) and a banged-up Lance Berkman (34) slated to share my utility spot. Some of those guys won’t pan out. But I’m just as confident in this group as I would be in an outfield of Jason Heyward (20), Hunter Pence (27), and Chris Coghlan (25), with Gordan Beckham and Billy Butler (both 24) at utility. And my team came much more cheaply, allowing me to slot more reliable players elsewhere.

I’ll check back on this question throughout the season, but right now I feel pretty good.




2 responses

7 04 2010

Don’t forget the metagame, or the value of awesome. The goals of fantasy sports isn’t just winning; there are two: winning and maximizing bragging rights.

Picking up some new dudes and saying, “I KNEW that Whosthat McRandom was going to be awesome” is much more awesome than bragging, “I KNEW that Oldnewsy von Fartington still had another year in him.”

8 04 2010
Loss Aversion in Fantasy Baseball (continued) « you like a da juice?

[…] Aversion in Fantasy Baseball (continued) 8 04 2010 I was already planning to follow up yesterday’s post with some reasons why loss aversion might exist in fantasy sports, when reader Joe makes the […]

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