EPCSCL-3

Instructor: Pragyan Rath

Argumentation: example for Nudge: Balance Theory

Article from Livemint.

There are quite a few binaries by which you can divide the modern world. For instance, there
are, on the one hand, people who enjoy pineapple on their pizza (barbarians), and, on the other,
those who completely despise such a combination (tasteful gourmands such as the author). A
binary that currently splits football fans across the globe has those who worship the Argentinian
maestro, Lionel Messi, and those who sing their morning prayers for the setter of hairstyle
trends, Cristiano Ronaldo.

What unites both these modern legends is a tiny but significant blemish (more so for Messi
than Ronaldo). Both of them missed a penalty for their respective nations in the on-going World
Cup. It is, thus, a good time to analyse this unique set piece which American author Adam
Gopnik describes as a situation that “creates an enormous disproportion between the foul and
the reward”.

One might think, damn economists, what business do they have talking about penalty kicks?

This is when I must serve up a reminder that economics, at its heart, is about the scarcity of
resources and how they, along with other factors, influence human decision making. The job
of the penalty-kick taker is to direct the ball into a scarce space and that of the goalkeeper to
choose where to place himself in order to save the ball from entering that space, all of it in a
finite amount of time. And both the goalkeeper and the kick taker are, to put it simply, only
human, and thus they become the victims of everyday fallacies of the human mind.

Human beings prefer action to inaction, a phenomenon psychologists refer to as the action bias
– Steve Levitt, the author of every person’s first pop-economics book, Freakonomics, has co-
written a paper on penalty-kick strategy, “Testing Mixed-Strategy Equilibria When Players Are
Heterogeneous: The Case Of Penalty Kicks In Soccer,” with P.A. Chiappori and T. Groseclose.
They make some fascinating finds. They studied shots taken and goals scored as a percentage
of shots taken in the French and Italian domestic leagues from 1997 to 2000.

What does the data from the paper tell us about the shot-taker?

I. His least preferred direction to hit the ball in was the middle (17%). He preferred
hitting the ball towards the left side of the goal (45%) or the right (38%).

II. Taking a shot in the middle had the highest pay-off (81% success rate) as against
hitting it on the right (70% success rate) or left (76.7% success rate).

In another research paper, “Action Bias Among Elite Soccer Goalkeepers: The Case Of Penalty
Kicks,” Michael Bar-Eli, Ofer H. Azar, Ilana Ritov, Yael Keidar-Levin and Galit Schein find
that goalkeepers tend to jump left or right to defend their goal though they are, in reality, more
likely to obstruct the course of the ball and save the penalty if they stay near the centre of the
net.

Even though Levitt et al correctly point out, “We cannot reject that players optimally choose
strategies conditional on the opponent’s behaviour,” it is still baffling that shot-takers and
goalkeepers do not choose the middle path more frequently, despite it giving both of them a
higher chance of success.

The reason, though, is simple. Human beings prefer action to inaction, a phenomenon
psychologists often refer to as the action bias. Bar-Eli et al explain this further in their paper:

The intuition why is that if the goalkeeper jumps and a goal is scored, he might
feel ‘I did my best to stop the ball, by jumping, as almost everyone does; I was
simply unlucky that the ball headed to another direction (or could not be stopped
for another reason).’ On the other hand, if the goalkeeper stays in the center and
a goal is scored, it looks as if he did not do anything to stop the ball (remaining
at his original location, the center)—while the norm is to do something—to
jump. Because the negative feeling of the goalkeeper following a goal being
scored (which happens in most penalty kicks) is amplified when staying in the
center, the goalkeeper prefers to jump to one of the sides, though this is not
optimal, exhibiting an ‘action bias’.

The world of investing is chronically plagued with this bias. Charlie Munger, talking about his
investment philosophy, once said: “We’ve got . . . discipline in avoiding just doing any damn
thing just because you can’t stand inactivity.” In a 2009 study, Nobel Laureate Eugene Fama
made a case for passive investing by showing that the cost incurred while actively trading
shares could easily offset the gains made in the trades.

Just like most human aberrations, this one also can be explained through the lens of
evolutionary psychology. According to Rolf Dobelli, author of The Art Of Thinking Clearly, in
hunter-gatherer societies, our ancestors survived because of lightning-fast reactions. Reflecting
could potentially be fatal. “When our ancestors saw a silhouette appear at the edge of the
forest—something that looked a lot like a saber-toothed tiger—they did not take a pew to muse
over what it might be. They hit the road—and fast,” Dobelli writes.

The world today is vastly different. We are rewarded by society for deliberating and taking
informed decisions even if our instincts might nudge us to do so otherwise.

Goalkeepers around the world might be aware of this systematic pattern of deviation from
rationality in judgement. But such an awareness is unlikely to change their behaviour. As John
Maynard Keynes taught us: “Worldly wisdom teaches that it is better for reputation to fail
conventionally than to succeed unconventionally.”