When to Walk Away and When to Risk It All
43 Pages Posted: 13 Feb 2020
Date Written: February 10, 2020
Abstract
While one might expect athletes to be strongly averse to extending their career too long when there is a chance of losing everything due to a concussion or a catastrophic injury, experimental subjects consistently played longer than the optimal amount for risk-neutral decisions. A commitment to the length of play in advance, as in the case of long-term contracts, led to a greater chance of staying beyond the expected payoff-maximizing point. If the decision frame is altered so that decisions are made in each period rather than through an upfront commitment, the magnitude of potential losses is more evident.
Keywords: Risk, concussion, loss aversion, framing, commitment, long-term contracts
JEL Classification: D91, D80, C91
Suggested Citation: Suggested Citation