REFERENCE‐DEPENDENT PREFERENCES, LOSS AVERSION, AND LIVE GAME ATTENDANCE

Dennis Coates · Brad R. Humphreys · Li Zhou

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Sports Analytics and Performance Decision-Making and Behavioral Economics Sports, Gender, and Society

Abstract

We develop a consumer choice model of live attendance at a sporting event with reference‐dependent preferences. The predictions of the model motivate the “uncertainty of outcome hypothesis” (UOH) as well as fans' desire to see upsets and to simply see the home team win games, depending on the importance of the reference‐dependent preferences and loss aversion. A critical review of previous empirical tests of the UOH reveals significant support for models with reference‐dependent preferences, but less support for the UOH. New empirical evidence from Major League Baseball supports the loss aversion version of the model. (JELL83, D12)

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References

1979Prospect Theory: An Analysis of Decision under Risk 1988Prospect theory: An analysis of decision under risk 1965The Valuation of Risk Assets and the Selection of Risky Investments in Stock Portfolios and Capital Budgets 1975THE VALUATION OF RISK ASSETS AND THE SELECTION OF RISKY INVESTMENTS IN STOCK PORTFOLIOS AND CAPITAL BUDGETS**This paper is another in a series of interrelated theoretical and statistical studies of corporate financial and investment policies being made under grants from the Rockefeller Foundation, and more recently the Ford Foundation, to the Harvard Business School. The generous support for this work is most gratefully acknowledged. The author is also much indebted to his colleagues Professors Bishop, Christenson, Kahr, Raiffa, and (especially) Schlaifer, for extensive discussion and commentary on an earlier draft of this paper; but responsibility for any errors or imperfections remains strictly his own.[Professor Sharpe's paper, “Capital Asset Prices: A Theory of Market Equilibrium Under Conditions of Risk” (Journal of Finance, September 1964) appeared after this paper was in final form and on its way to the printers. My first section, which parallels the first half of his paper (with corresponding conclusions), sets the algebraic framework for sections II, III and VI, (which have no counterpart in his paper) and for section IV on the equilibrium prices of risk assets, concerning which our results differ significantly for reasons which will be explored elsewhere. Sharpe does not take up the capital budgeting problem developed in section V below.]1991Anomalies: The Endowment Effect, Loss Aversion, and Status Quo Bias 2006A Model of Reference-Dependent Preferences 1956The Baseball Players' Labor Market 1997Labor Supply of New York City Cabdrivers: One Day at a Time

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