# Prospect Theory and its Supporters

For those of you not familiar with Behavioural Finance; the founding fathers Amos Tversky and Daniel Kahneman’s formulated a theory called Prospect Theory which deals with the way ordinary people make decisions about risky choices “knowing” the probability of the outcome. They found that the emotional value placed on the different outcomes produced an asymmetrical pay off where the emotion of loss had a far deeper impact than the pleasure of gain. As a rough rule of thumb it is documented that we experience a Loss Aversion i.e. we experience 2x the feeling of pain as we do to 1 part of joy, and you can see this demonstrated nicely in the chart below. If you are a math geek who wants to see the formulae this is what it looks like:

Every Sunday I take my son to play a weekly soccer match which I have been doing for the last 6 years with each year resulting in a significant increase in the amount of pressure attached to the match. I have loved watching and derive immense satisfaction with the skill improvements that have come from the dedication, commitment and passion for the game.

It dawned on me yesterday that my experience as a soccer supporter has a remarkable Prospect Theory S – Curve shape to it. I am sure many parents and loyal fans can attest to this. In essence when my son gets the soccer ball I am so petrified that he is going to stuff it up that my stomach rises into my chest so that when he does have a poor touch the negative emotions far outweigh the positive feelings of relief I get when he does something positive with the ball. I am not suggesting this is how every supporter experiences their moment.

For me the fact that my son made a specific team places a certain expectation of his player ability. Therefore simply playing a reasonably high level of soccer doesn’t necessarily illicit this immense emotion of joy; however, the minute he fails to meet this standard the negative emotion of disappointment and embarrassment far outweighs the positive emotions.

The truth be told I truly believe I am not like the typical parent trying to push his kid for over achievement. I sit quietly on the sidelines and I refrain from in-depth postmortems on the way home. This behavioural insight I share with you is probably the first time I have found a legitimate framework to contain the emotions I feel as a supporter.