🏈 Superbowl week, which means:
🕺 Halftime show - Who remembers Janet Jackson?!?
💰 Expensive TV commercials - Watch the Betty White Snickers ad!
But more importantly, it is about the football. I want to take you back to Superbowl 49 in Glendale, Arizona which featured two of the most respected coaches from the last 20 years, Bill Belichick (New England Patriots) and Pete Carroll (Seattle Seahawks).
Seattle are down four points, 26 seconds to go and the ball on the Patriots 2-yard line. A touchdown is worth six points and the team had one of the most dominant running backs in Marshawn Lynch. The crowd expected a run play and a touchdown, and a Seahawks win. They were moments from glory.
Instead, MVP candidate and Seahawks QB, Russell Wilson threw out wide to Ricardo Lockette, only for the ball to be intercepted by Malcolm Butler to secure victory for the Patriots and their star player Tom Brady.
ESPN called it the “worst Super Bowl play of all time.” Commentators could not get to the mic quickly enough to judge this play, saying that it was a “no brainer” to hand the ball off to Lynch, saying legendary Carroll had a “brain cramp.”
Judgements and articles were all written on the outcome. This is “Outcome bias.”
Outcome bias was first documented in the 1980s by Jonathan Baron and John C Hershey. It is the belief that if an outcome is good then the preceding decision was good and conversely, if an outcome is bad then the earlier decision must have been bad.
Across the investment industry we are fixated on investment outcomes which may lead us to suffer from outcome bias. Have you ever reviewed a fund’s performance and thought it must be a good fund as it has been top quartile? Or stated that it was obvious that a stock would go up given the circumstances it faced?
How to recognise outcome bias?
⚖ 1. Think about the role of skill or luck within an activity and how much of a role it plays in the result - ask yourself, can you lose on purpose? You can lose a game of chess much easier than a game of poker.
✍ 2. Write down what you are feeling before making a decision and date stamp it. - avoid revisionist history.
Back to Glendale, Arizona...
Bringing it back to Super Bowl 49, Pete Carroll got unlucky. When Seattle lined up before the snap, they faced eight defenders against six blockers. Seattle had a stronger run game, but they mixed their strategy to develop a reputation of being unpredictable (using game theory).
According to ESPN statistics they ran the ball 56% of time and spent 44% passing. Carroll had three chances to make a touchdown, but the team were short on game time. In addition, historically the chances of an interception at the one-yard line are 3.1%. Passing the ball in this situation was a viable option.
Carroll made a good quality decision based on a strong process and backed by analytics. The outcome did not reflect it, but we can all learn from this situation by understanding how much of a bad break they got.
