James Hilliard and colleagues examine how people adjust their risk-taking when they approach meaningful thresholds where they stand to gain or lose status. Using more than 764,000 driver-race observations from the iRacing simulation platform, they analyze whether racers behave differently when nearing promotion or relegation points, measuring risk-taking by the number of incidents per corner. Overall, racers take less risk when approaching promotion and more risk when facing potential relegation, consistent with reference-dependent preferences and prospect theory. Risk-taking also rises during the final week of a racing season, when outcomes matter more, though the authors note this may partly reflect a harder final-week track. Status also shapes these effects: higher-level racers facing relegation become more cautious to protect their existing position, while those near promotion tend to take somewhat more risk, though this pattern weakens among the most active racers. The study also finds significant loss aversion, showing that potential losses influence behavior more strongly than comparable gains, and this effect is stronger among less-skilled drivers than among the most skilled. The findings show how promotion, ranking, and progression systems can shape risk-taking behavior, with implications for incentive structures in areas such as career advancement, contract renewal, retirement, and investment decisions.
Driven by risk: Understanding reference-dependent preferences using simulated auto racing
