Tuesday, November 17, 2009

How coaching football and making policy is similar

Gerald Prante makes a great observation:
Virtually, the entire sports talk universe has called Belichick out for his decision to go for it on 4th down as opposed to punting the football. However, it's pretty evident that the degree of opposition to Belichick's decision amongst the sports public and even so-called football experts is disproportionately high compared to the true probability that Belichick's decision would fail. In fact, a few statistical geeks have even suggested that Belichick made the correct decision under the criterion that head coaches are supposed to use: maximize the probability of your team winning. But in reality, most coaches would have punted the football.

Interesting you may say, but what does this have to do with economic policy?

The type of response we see to Coach Belichick's decision is too often what we also see in public policy debates: there is a bias for what is seen versus what is not seen. One can easily blame Belichick's decision for the Patriots losing the game. But there was still a significant probability that the Patriots would have lost the game had he made the opposite decision and punted. And even though the probabilities of winning under either decision may have been the same (or Belichick may have even made the right decision from a probability perspective), Belichick would not have been blamed had he punted and the Patriots still lost. In summary, even though a given decision may be 50/50 from the perspective of maximizing the team's chances to win, there is an asymmetry in terms of the payoffs from the coach's perspective. In other words, as Steven Levitt pointed out, we have a principle-agent problem where the self-interests of the head coach are not aligned with the interest of the team (i.e. winning the game).

This is the same reason the FDA is more likely to disapprove a healthy drug than approve an unhealthy drug. If the FDA approves a drug that kills people, the media and the general public will go crazy. But they don't see the fact that every year, the FDA is disapproving relatively healthy drugs and costing lives. And it's why politicians would rather have a tax code that uses tax credits that favor one industry over another at the expense of higher taxes on others. Everyone sees the benefits of the tax credits helping Industry A (and politicians will be there at the ribbon-cutting ceremonies to take credit for "creating jobs"), but the public doesn't see the higher taxes on Industries B, C, and D. It's also why the public supports significant restrictions on international trade. A factory closing in Ohio can be easily blamed on cheap foreign labor because the link of causation is rather short (the factory moves to Mexico or Asia). But the benefits of that cheap foreign labor (like lower prices for consumers and higher productivity) aren't seen by customers as being derived from that free trade policy.

A roundup of the numbers here.

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