Par Putts Are Ok But Bogey Putts Are Not?

Tuesday, August 18th, 2009

In light of the exciting PGA Championship, I thought I would make a point with a golf analogy.
No matter how professional you are in your field it seems like a loss “feels worse” than a gain “feels good”. Even Tiger Woods is affected by this pull of irrational behavior when faced with bogey vs. birdie putts.

In a New York Times Article, according to two professors at the Wharton School, “After analyzing laser-precise data on more than 1.6 million Tour putts, they estimated that this preference for avoiding a negative (bogey) more than gaining an equal positive (birdie) — known in economics as loss aversion — costs the average pro about one stroke per 72-hole tournament, and the top 20 golfers about $1.2 million in prize money a year.”

“Par putts just seem to be more critical because if you miss, you drop a shot — if you miss a birdie putt, it doesn’t seem to have the same effect,” said Jim Furyk.

“When putting for birdie, you realize that, most of the time, it’s acceptable to make par. When you’re putting for par, there’s probably a greater sense of urgency, so therefore you’re willing to be more aggressive in order not to drop a shot. It makes sense.” said Justin Leonard.

Does it though? Isn’t each stroke equal on the scorecard in golf? Shouldn’t all shots be treated equal?

Reporter Larry Dorman said “But they are not, according to the study of almost 200 tour professionals from 2004 through 2008. Using data the tour regularly records on every ball’s green location accurate to the nearest inch, the professors found that birdie putts were made about 3 percent less often than otherwise identical putts for par. (In effect, players tell themselves before birdie attempts, “Let’s just get close,” rather than, “I have to make this.”) Given that players typically attempt nine birdie putts per round, this cost each golfer about one stroke per tournament — which can translate to hundreds of thousands of dollars in prize money.”

I imagine this goes on in all fields. Emotionally, competitors are always in a battle between winning and not losing. Losing trades sometimes take on the dynamic of “let’s just get even with this” as opposed to “This could still be a big winner”. Just like the golfer seems to play the birdie putts much more conservatively than the par putts, we traders sometimes look not to lose when breaking even seems acceptable. This can cost us just like the golfer.

Taking rational losses is part of winning in the trading game, but irrational exits are not.

“A 10-footer for par feels more important than one for birdie,” said Goydos, a two-time winner on the tour. “The reality is, that’s ridiculous. I can’t explain it in any way other than that it’s subconscious. And pars are O.K. — bogeys aren’t.”