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

Author

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  • Bart Stemmet

    (Department of Economics, University of Stellenbosch)

Abstract

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.

Suggested Citation

  • Bart Stemmet, 2011. "Hedging one’s happiness – Should a sports fan bet on the opponent?," Working Papers 20/2011, Stellenbosch University, Department of Economics.
    • Handle: RePEc:sza:wpaper:wpapers148
    as

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    File URL: https://www.ekon.sun.ac.za/wpapers/2011/wp202011/wp-20-2011.pdf
    File Function: First version, 2011
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    References listed on IDEAS

    as
    1. 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.
    2. 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.
    3. David A. Cather, 2010. "A Gentle Introduction to Risk Aversion and Utility Theory," Risk Management and Insurance Review, American Risk and Insurance Association, vol. 13(1), pages 127-145, March.
    4. Richard Easterlin, "undated". "Diminishing Marginal Utility of Income? A Caveat," University of Southern California Legal Working Paper Series usclwps-1004, University of Southern California Law School.
    5. Matthew Rabin, 2000. "Risk Aversion and Expected-Utility Theory: A Calibration Theorem," Econometrica, Econometric Society, vol. 68(5), pages 1281-1292, September.
    6. Daniel Kahneman & Amos Tversky, 2013. "Prospect Theory: An Analysis of Decision Under Risk," World Scientific Book Chapters, in: Leonard C MacLean & William T Ziemba (ed.), HANDBOOK OF THE FUNDAMENTALS OF FINANCIAL DECISION MAKING Part I, chapter 6, pages 99-127, World Scientific Publishing Co. Pte. Ltd..
    7. Daniel Kahneman & Amos Tversky, 2013. "Prospect Theory: An Analysis of Decision Under Risk," World Scientific Book Chapters, in: Leonard C MacLean & William T Ziemba (ed.), HANDBOOK OF THE FUNDAMENTALS OF FINANCIAL DECISION MAKING Part I, chapter 6, pages 99-127, World Scientific Publishing Co. Pte. Ltd..
    8. Richard Easterlin, 2005. "Diminishing Marginal Utility of Income? Caveat Emptor," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 70(3), pages 243-255, February.
    9. 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.
    Full references (including those not matched with items on IDEAS)

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    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Hedging one’s happiness in sports
      by UDADISI in udadisi on 2011-12-18 00:35:00

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    More about this item

    Keywords

    Happiness; Sports betting; Risk aversion; Loss aversion;
    All these keywords.

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations

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