The Psychology of Human Misjudgement (In Football) — Pt. 1 / n
I recently finished the excellent book “Charlie Munger: The Complete Investor” , after finding out about the book from a podcast recommended by Colm McMullan in his equally excellent newsletter.
The book focuses on Charlie Munger, the vice chairman of Berkshire Hathaway — the American conglomerate company — and his approach to investing. I read the book with the mindset that there are likely parallels between the worlds of investing within both the asset management and football industries, and I was right.
One of the chapters within the book is titled “The Psychology of Human Misjudgement”. It details 25 heuristics and mental models that Munger either attempts to utilise, or avoid, in all of the decisions he makes.
The value in such leveraging these is summed up nicely by the book’s author Tren Griffin in the following two quotes:
Even though you cannot be perfect, you can get marginally better at avoiding mistakes and have an edge in the market over people who do not understand Munger’s tendencies and other aspects of behavioural economics.
and
If you understand dysfunctions that are caused by behavioural economics phenomena and the other person does not, then you have a potential edge.
It’s true that in many markets the best way to be smart is to… not be stupid, football included. I believe that these mental models can be leveraged within football, to give an edge in many areas.
Below is the beginning of a breakdown of each of Munger’s heuristics. Each point contains an definition of what the heuristic is, a football-based example and finally a potential solution to overcoming the heuristic.
This list is brief, with there being plenty more examples and solutions for each heuristic that I could have gone for — but it’s 2017 and you’re more likely to get something out of reading this if I keep it short 😎
Without further ado..
1) Reward and Punishment Super-response Tendency
Definition: We underrestimate how important (dis)incentives are in changing ones behaviour.
Example: It is in the agent’s best interest to move a player on while he is playing at his peak to get paid part of the fee. It may not be in the player’s interest to move.
Solution: There isn’t a one-size-fits-all solution for this heuristic. One solution is to have “skin in the game” or having to “eat your own cooking” where applicable— where you have a share in the downside of something happening and the upside. The agent should get his cut at a later date, which should be adjusted based on the player’s performances. More if the player’s played well, less if the player hasn’t (albeit this is likelier easier said than done…)
2) Liking/Loving Tendency
Definition: We tend to ignore the faults of people we like/love.
Example: Signing a given player because you know them and like them, despite their skillset being unsuitable for the current opening you’re trying to fill.
Solution: Gathering feedback from people who are not afraid to disagree with you. Building a team with people who believe this too is extremely important.
3) Disliking/Hating Tendency
Definition: We tend to overstate the faults of people we dislike/hate for irrational reasons.
Example: Not signing a player based on the fact he previously played for a rival club.
Solution: Again, gathering feedback from people who are not afraid to disagree with you.
4) Doubt-Avoidance Tendency
Definition: We try to remove doubt when making a decision we are unsure of by making the decision quickly, and often without enough information.
Example: Signing a player on transfer deadline day because you need a new [insert position here] before the window shuts.
Solution: Remove as much doubt as possible through having a solid process in place to efficiently and accurately assess transfer targets, utilising as much available information as possible. Getting your work done before the window shuts is a sensible way to remove the pressures of time, and using as much information as possible can help remove doubt and uncertainty.
5) Inconsistency-Avoidance Tendency
Definition: We are habitual, we have a reluctance to change. For this reason people are slow to change their beliefs about a given topic, even if it’s proven false.
Example: Continuing to pick a player, even when his underlying data shows that he is performing poorly.
Solution: The implementation and buy in of a process that focuses on objectivity, critical thinking by all staff members and above all, openness can help remove the adverse effects of this bias. Below is a nice example of Golden State Warriors head coach Steve Kerr reeping the rewards of implementing such an environment:
I plan on writing further about this topic in the coming weeks. In the meantime I’d love to hear your thoughts on this piece, find me over on Twitter: @Worville!
