Decisions and Outcomes
By David Henderson
In yesterday’s post in which I applied the Third Pillar of Economic Wisdom to some decisions made near the end of the Superbowl game, I didn’t challenge the conventional wisdom that say that Seahawks coach Pete Carroll made a bad decision about the play call on the second down.
Matt Yglesias, though, does a good job of that.
But here’s the bigger point I want to make and it applies whether the decision is by a football coach in a big game or you in your big game called life.
The point is this: it’s important to distinguish between decisions and outcomes. We all know why there is so much criticism of Pete Carroll: because his play decision for that second down led to a bad outcome.
But that doesn’t mean it was a bad decision.
Good decisions, in a probabilistic world, that is, our world, sometimes lead to bad outcomes. And bad decisions sometimes lead to good outcomes.
Ask yourself this: would there be all this second-guessing of Pete Carroll if the Seahawks receiver had caught the ball and marched into the end zone, putting the score at 31-28 (with a converted touchdown), with only 20 seconds left to play? Well, if we take all of these commentators at their word, that’s exactly what they should be doing the day after the Superbowl: excoriating Pete Carroll for his risky decision that won him the Superbowl. What are the odds that more than a handful would do that? Close to zero. And what does that mean? That they aren’t making a clear distinction between good decisions and good outcomes.
Here’s how my co-author Charley Hooper and I put it in our book, Making Great Decisions in Business and Life:
There is a difference between a good decision and [a] good outcome. Brian bought a house right after he started a new job as a consultant. He almost ran into trouble due to a dry spell of consulting work. Things turned out well, and he ended up selling the house for a $100,000 profit just a couple of years later because the real estate market appreciated wildly. Many people would say that, in buying the house, Brian made a good decision.
We’re not so sure. A good decision is one that you would choose to make again and again, even though you occasionally get stuck with a bad outcome. Brian was fortunate, but would he buy a similar house under the same circumstances again? The answer to that question would help determine whether or not he made a good decision.
We then give an example of a teacher giving two kids a choice of a number between 1 and 10, with the kid who chooses the number closer to the teacher’s number getting some special treatment. If Addie chooses first and chooses 2, what is Greer’s best choice? It’s obviously to choose 3, because then the probability that he will win is 80%. But Greer chooses 1. And he wins, because the teacher chose 1. His probability of winning was only 10%. Good choice? No way. (And, of course, if Addie has to choose first, her best option is to choose 5 or 6.)
Over at 538.com, Benjamin Morris does a beautiful analysis in which he makes the clear distinction between decisions and outcomes. His bottom line, which he makes persuasively: the coach who botched the call was Bill Belichick. On the other hand, Adam Kilgore of the WaPost makes a reasonable case that Belichick, by not calling a timeout, severely limited Carroll’s options. This is why I loved that particular Superbowl.