Re: [Pen-l] Article on risk aversion

[Jim Devine <jdevine03@xxxxxxxxx>]

Bill Lear wrote:
> The article says that the irrational bias discovered in the study
> "cost each golfer about one stroke tournament per which can translate
> to hundreds of thousands of dollars in prize money".  But isn't it
> true that if each golfer gained one stroke per tournament, they would
> be no better off in terms of prize money, as every golfer would be
> similarly better off?

it's collectively rational for all of them to be "excessively
cautious" since it involves less work and the number of winners and
their prizes are fixed. But it might be individually rational to be a
"free rider," to take big risks. (Is this Tiger Woods? I don't know,
since I don't know golf at all.) This type of behavior would push the
entire group to stop being "excessively cautious."

This is called positional competition. There can be informal "arms
agreements" which prevent extreme competition. But these can be
broken, causing an arms race (fancier & fancier equipment, more and
more risk-taking, etc.) The good news is that it might make the game
more exciting to the spectators. The equipment manufacturers (and the
steroid sellers?) can also profit. It might turn into "extreme golf."
-- 
Jim Devine / "Segui il tuo corso, e lascia dir le genti." (Go your own
way and let people talk.) -- Karl, paraphrasing Dante.
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