Explaining Racing Behavior

When I was in grad school, I really enjoyed reading and studying theory and finding how it played out in the world around me. Good theory comes to life everywhere, if you look closely enough.

For example, when I see people — usually politicians — who are perfectly comfortable with their own hypocrisy — but, ironically, not that of others — I see cognitive dissonance theory at work. When I see unintended consequences take place, I suspect it’s because of the effects of uses and gratifications theory.

Lately I’ve been reading an engaging book my wife bought for me called, “Misbehaving: The Making of Behavioral Economics.” Written by Dr. Richard H. Thaler, the book is not as dry and impenetrable as the title might have you believe. I wouldn’t call it light reading, but it’s a fun and hugely interesting book.

The book — and at least part of the field of behavioral economics, for that matter — centers on prospect theory, which is “a behavioral model that shows how people decide between alternatives that involve risk and uncertainty,” specifically regarding the likelihood of gains or losses, according to BehavioralEconomics.com. The theory shows that people think in terms of “expected utility relative to a reference point rather than absolute outcomes.” In economics, that reference point is typically an entity’s current wealth.

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First outlined by professors Dan Kahneman and Amos Tversky, prospect theory holds that people are loss averse. We dislike losses to a greater degree than we like equivalent gains, and we are more willing to take risks to avoid those losses.

Prospect theory has wide applicability. It has been used in such diverse fields as consumer choice, labor supply, management and insurance. It also has been used to model people’s behavior when investing and gambling.

For example, according to Thaler, mutual fund managers have a tendency to take on greater risk in the last quarter if the fund they are managing is trailing a benchmark index. Similarly, bettors who are “down” at a horse track begin to bet on longshot horses to try to break even. According to Thaler, “more people are betting on the horses least likely to win.”

Which brings us to the racetrack we are more familiar with. Think about the races you’ve been involved in. When do drivers take more risks? Which drivers take them, and why?

If the theory holds true in automobile racing — and I’m betting it does — drivers who take more risks are usually in the same position as bettors who are “down” at the horse track. A driver who has lost positions since the start of a race likely would be more willing to take more risk than a driver who has not lost any spots since the start, or gained positions. A driver’s starting position is equivalent to the “reference point” outlined in prospect theory. The risk-taking likely would play out more noticeably toward the end of a race, and it should hold true regardless of whether we’re talking about a podium finisher or somewhere midpack.

Prospect theory manifests itself in racing in the form of low-percentage pass attempts and other risky moves the same drivers wouldn’t have attempted earlier in the race, or if they hadn’t lost positions since the start.

“A good rule to remember,” said Thaler, “is that people who are threatened with big losses and have a chance to break even will be unusually willing to take risks, even if they are normally quite risk averse.”

If you haven’t witnessed drivers demonstrating prospect theory, it might be because you weren’t aware of it. However, now that you know a little more about it, tuck it in the back of your mind and see if you can spot it in future races — or see it in yourself. Good theory comes to life everywhere, if you look closely enough.

1 COMMENT

  1. Analogy of a gambler (addicted or not) and an athlete or enthusiast race car driver are not similar. Will readers accept it as credible?

    A person that gambles taking risks at an occassionally outing may equate with non golfers playing an occassional outing. Not enthusiasts much less athletes. Worse for the analogy is a gambler with medically treatable addiction.

    Race car drivers are motivated in as many ways as career or recreation choices. Pro athlete or enthusiast level (HPDE/TT) race car drivers have a competitive nature, positive attitude and visible joy in spirit.

    I’m 70, retired from sales, undergrad Criminal Justice (former Detroit copper) enjoy many outdoor adventures. Jan-Jul drove 1965 Shelby Cobra Roadster HPDE 1 (beginner with coach) to HPDE 3 (solo) on 9 tracks and 2,000 miles from AZ, TX, FL, VA, KY, OH and WI. I avoid risk of injury where there is a single point of failure and/or lack of sufficient control.

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