Shane Frederick (Associate Professor at Yale University’s School of Management) did a talk on Behavioral Economics at our recent research conference that got me thinking. But before we tap into the scary place that is my brain, let’s consider what behavioral economics is. Most of us with a formal business education have taken at least one if not several economics classes, during which we were exposed to market theories based on assumptions that sounded reasonable in principle but that really didn’t represent how things worked in real life. Behavioral economics, Shane started, is the study of economics when those assumptions are relaxed, and the relaxation of one of these assumptions, that people act rationally, is what got my attention.
One of the examples Shane used to make his point involved a pivotal point late in a 2009 football game between the New England Patriots and the Indianapolis Colts. Bill Belichick, the coach of the Patriots, decided to go for it on 4th and 2 deep in his own territory. The attempt failed, the Colts scored after the ensuring change of possession and won the game, and nearly everyone in the sports world pointed to Belichicks' seemingly insane decision. But was it really insane?
Using outcome probabilities derived from prior NFL football games, Shane showed that, objectively speaking, the Patriots had a greater probability of winning the football game by going for it than they did by punting the ball to the Colts. This is not new, and as fan of statistics in sports I have seen countless pieces that assert that from a strictly objective standpoint a football team should (almost) never punt. The problem is, as Bill Belichick found out, it’s not about objectivity. It’s not about logic. It’s about emotion, and when a (smart) move like going for on 4th and 2 doesn’t work, fans get very emotional.
Let’s further consider this emotion over logic mentality. I’m a big hockey fan. I’m also a big football fan, but hockey’s always been my sport – maybe it’s my name:) My team is the Philadelphia Flyers, and they have not won a Stanley Cup since 1975. So every spring, I commence with various emotion-driven rituals designed to “help” my team. One year I ate certain foods on certain days of the week convinced that if I broke ranks my team was toast. Another I put the same medallion in the left pocket of the same pair of jeans for every game of the play-offs. My list of rituals and superstitions goes on and on. I share this without regard because I know I am not alone…fans are notorious for their curious behavior and beliefs when it comes to impacting games. They routinely let their emotions trump logic. In a word, irrationality often rules.
Sports are obviously not the only forum in which this phenomenon exists. The fact that people are not going to act rationally is practically a given. Figuring out how this reality impacts decision making is an important challenge we as researchers face. In the meantime, I shall continue my ritual tinkering until my team finally wins…