Why Do We Love Underdogs? The Underdog Effect

Original source: SimoleonSense.com .

Quite a bit of psychological and economics research in this piece..

H/T Jonah Lehrer for pointing this out via twitter

Interestingly enough…I don’t believe most people are fans of underdogs when it comes to stock picking…

Introduction (via Daniel Engber  Slate)

Fans of sports underdogs have had an amazing run these past few months. In February, the New Orleans Saints won their first-ever Super Bowl, an upset victory over the invincible Colts. At the beginning of April, a little-known college from the Midwest made it to the NCAA basketball title game against the hated Blue Devils. (When the kids from Butler finally lost, the papers called them “triumphant in defeat.”) And this Friday night, the Oklahoma City Thunder will be playing to force the heavily favored, defending champion Los Angeles Lakers to a Game 7 in the first round of the NBA playoffs.

Reason tells us this run will soon be over—underdogs are underdogs because they usually lose. I wasn’t the only one whose heart sank when Butler’s final shot rimmed out, and I won’t suffer alone when Oklahoma City gets bumped from the playoffs. We all share in the occasional joy—and more frequent misery—of rooting for the improbable.

Case in point: I cheered for Butler, ranked No. 5 in their region, as the long shot against Duke, ranked No. 1. But a few days before, when the Bulldogs had played another five seed, Michigan State, I didn’t know which team was the underdog. The only solution was to root for the side that happened to be losing. Soon I found myself cheering for a Spartans team that couldn’t get it together in the second half. They made a late run—closing to within one point in the final minute—but, alas, my disappointment was guaranteed. (If Michigan State had come back, I would have been pulling for Butler.) When the game ended, I fell into a sour mood.

Interesting Excerpts (via Daniel Engber  Slate)

Researchers have found evidence for exactly this phenomenon—called the “favorite-long-shot bias”—at the horse track. One recent study that compiled stats from some 6 million American horse races showed a steep drop-off in the return on winning bets, as the odds against those bets increased. In other words, bettors were throwing money at the underdogs and underbidding on the favorites. That’s not because we get some special pleasure from playing the ponies at 100-to-1, the authors argue. It’s because we tend to overestimate the long shots’ chances.

This bias might be explained by a tendency that behavioral economists have labeled the “availability heuristic”: We make judgments about probability based on whatever data spring most easily to mind. The examples you remember are the ones that influence your beliefs. If you’ve just watched hours of footage about 9/11, for example, you might think you’re more likely to die in a terrorist attack than in a car accident.

But there’s one problem with this idea: In real-life competition, underdogs don’t seem to have any more gumption than the odds-on favorites. In fact, recent data suggest that the underdogs might be dogging it.

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The subjects who believed they were up against the stronger competition ended up performing worse on the test. Playing the role of the underdog appeared to sap their motivation. Likewise, the group that was ostensibly paired with a lower-ranked school seemed to try harder.

The desire for equity (or the aversion to inequity, as it’s more often formulated) could explain our strange attachment to the losing team. Economists have shown that people are willing to sacrifice their own interests for the sake of restoring balance. A well-known example comes from the laboratory game “Ultimatum.” Two players are presented with a pool of money, and the first proposes a way to split it—say, 60-40. The second player then decides whether to accept the offer. If she turns it down, neither one gets any money. It seems like no one should ever reject the offer, since that means forgoing something for nothing. But in practice, the idea of an uneven reward drives people crazy. We’d rather give up our share altogether.

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