Real life experience;
Piloting my freighter south through the Anegada Passage on a fairly blustery night (what's new about that?) I was on the bridge, wide awake and taking my watch seriously, not sitting in my helm chair relaxing.
I saw a running light (don't remember if it was red or green) ahead so I walked out onto the bridge wing to look carefully at the disembodied light waving about ahead. Not being able to determine it's distance away, I headed over to the radar to check it out but never made it to the radar, as this light slid by the bridge wing before I got anywhere near the radar. I ran back out to the bridge wing and saw the yacht slide by my hull about 15 feet away!
A masthead tricolor is only a colored light waving madly about somewhere ahead.
Deck mounted running lights shine on the sea, the sails and the spray which gives the observer some idea of the distance away the vessel might be. Add to that the stern light shining on the wake and an observer at 50 to 80 feet off the water even has some idea of how long the vessel is.
Again, a disembodied light wildly waving about gives an observer on a ship none of the information the deck mounted lights can.
In several other instances in harbors, I have been surprised to come across a completely unlit sailboat in my path, only to realize sometime later (after cursing the other captain for being unlit), that he had a masthead tricolor that was completely obscured by my bimini.
As mentioned above perhaps AIS could help with this situation (mine was pre-AIS by many years), if it is functioning on both vessels and if someone is monitoring it.
Personally, I'll not trust my life to an electronic device that may not be installed aboard the other vessel, can be shut off because the operator gets tired of hearing the alarm go off incessantly, or for any other reason. Remember the two navy ship collisions recently?
Ever since that night, I have been vehemently opposed to masthead tricolors, though the vertical red/green sailing lights are an acceptable alternative if one feels their deck mounted running lights aren't sufficient in themselves.
Way too many sailors forget that the majority of the vessels they may encounter are not looking at them from the same vantage point (6 feet or so above sea level) that they are, on their sailboat.
This story is valuable. I have to admit I was thinking offshore in deep swells the tri color 60' above our deck would be visible from father away and preferred for this situation. But after reading the above am not so sure. also have AIS transponder and radar with alarms.