Bronze Medalists are happier than Silver Medalists - Basic Prospect Theory

Today Indian hockey team won the bronze medal, re-writing history after having won an Olympic medal after 41 years. It indeed is a time to rejoice for the entire nation. Consequently, the Prime Minister of India, Mr Modi dialled the Indian hockey team's captain, just post the match to congratulate him. Footages of this call had even been trending on Twitter today. If you hear the telephonic conversation carefully, the PM had said to the captain during the call that his (captain's) voice was dull when India had lost the semi-final match but post-winning bronze his (captain's) voice feels richly enthusiastic. Indeed India did win a medal but simultaneous I believe this response indicates an important psychological feature about humans, that is, how we react to our finishes in competitive events.

Investigating into this issue I found that actually studies have been done by psychologists in this area. Specifically, Psychologists Victoria Medevec and Thomas Gilovich of Cornell and Scott Madey of the University of Toledo took the video footage of medal ceremonies and the winner announcements just post the event during the 1992 summer Olympics. They then showed these video's to undergraduate students and asked them to rate the smiles of podium athletes from 1 (agony) to 10 (joy). The results showed that both immediately post-event and also during medal ceremonies, bronze medalists were much happier than silver medalists. Similarly, Dr. Luangrath from the University of Iowa evaluated over 400 athletes from over 160 sporting events and more than 67 countries and reached the same conclusion.

Although psychologists did provide their explanations but as an Economist, I wanted to see it through my lens. This brought me to behavioural economics. Although one might argue that this sub-domain of economics has been developed in conjugation with psychologists and indeed they would be correct but I believe economics provided a quantitative coherence to the psychologist's explanations. As a part of microeconomics, I think it's worth looking at this phenomenon through basic Prospect Theory. 

Basically, according to the prospect theory, the observation could be explained by the reference setting of individual winners in their games. For silver medalists the reference point was gold and so even silver feels like a loss. However, for a bronze medalist, their reference point was no medal at all and consequently, even bronze imparts a big utility shift. Our simple model (shown below) suggests that the silver medalists utility reduction (-2) is twice the gain in utility by bronze medalists (+1).