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Hedging one’s happiness – Should a sports fan bet on the opponent?

  • Bart Stemmet

    ()

    (Department of Economics, University of Stellenbosch)

This paper sets out to show that a risk-averse sport fanatic could hedge his happiness by betting on the opposition. The literature surrounding happiness, risk- and loss aversion is explored and a model is developed to explain the happiness a fan derives from a match. It is shown that expectation as to what the result may be plays a vital role in the emotions awakened. An upset victory is much sweeter than one where one’s team is the outright favourite. Expectations determine the odds offered by bookies. Here lies the beauty of this strategy. Suffering an unexpected loss is more painful than an anticipated beating. That being said, the payout from betting on the underdog opposition (which subsequently won) would be larger the more unexpected the result was. To bet on the opposition to hedge one’s happiness appears to be a plausible strategy for an economically risk-averse sports fan – especially if one supports the odds-on favourite.

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File URL: http://www.ekon.sun.ac.za/wpapers/2011/wp202011/wp-20-2011.pdf
File Function: First version, 2011
Download Restriction: no

Paper provided by Stellenbosch University, Department of Economics in its series Working Papers with number 20/2011.

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Date of creation: 2011
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Handle: RePEc:sza:wpaper:wpapers148
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  1. Rabin, Matthew, 2000. "Risk Aversion and Expected-Utility Theory: A Calibration Theorem," Department of Economics, Working Paper Series qt731230f8, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
  2. Richard Easterlin, 2005. "Diminishing Marginal Utility of Income? Caveat Emptor," Social Indicators Research, Springer, vol. 70(3), pages 243-255, 02.
  3. Andrew E. Clark & Paul Frijters & Michael A. Shields, 2008. "Relative Income, Happiness, and Utility: An Explanation for the Easterlin Paradox and Other Puzzles," Journal of Economic Literature, American Economic Association, vol. 46(1), pages 95-144, March.
  4. Mohammed Abdellaoui & Han Bleichrodt & Corina Paraschiv, 2007. "Loss Aversion Under Prospect Theory: A Parameter-Free Measurement," Management Science, INFORMS, vol. 53(10), pages 1659-1674, October.
  5. Martin Spann & Bernd Skiera, 2009. "Sports forecasting: a comparison of the forecast accuracy of prediction markets, betting odds and tipsters," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 28(1), pages 55-72.
  6. Kahneman, Daniel & Tversky, Amos, 1979. "Prospect Theory: An Analysis of Decision under Risk," Econometrica, Econometric Society, vol. 47(2), pages 263-91, March.
  7. H. Bleichrodt & C. Paraschiv & Mohammed Abdellaoui, 2007. "Loss Aversion Under Prospect Theory: A Parameter-Free Measurement," Post-Print hal-00457047, HAL.
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