Wednesday, November 18, 2009

Bill Billicheuck in the class room.

Hubris or sound economics? Either way it is a great example of why managers often "go with the Crowd."

If you care about football (American style, not soccer) you no doubt have seen the story from a few weeks ago. Short version- New England was leading and had a fourth and two on their own 28 yard line. The standard prescription at this time is to punt the ball away. But instead they went for it and did not make it. (Here is a video of it).

Since then Belichick (who is incidentally the most successful coach in the league), has been criticized repeatedly for the highly unusual call. He has been called arrogant. He has been accused of losing the game. And ESPN even went so far as to make it one of their "Top Ten Bonehead Plays of all time."

As a teaching lesson, much can be learned from this case.

For instance, what if a normal coach (ie not a super star coach) had done this? Chances are his job would be in jeopardy. So going with the crowd (i.e. not stickingout may be little more than an agency cost story. This would help to explain momentum investing as well, since if you do not go along with the Joneses, you may lose your job.

But before he is criticized too much, consider, he may have made the right choice.

Greg Mankiw's Blog: A Rational Loss for Bill Belichick:
"David Romer's work on 4th down strategies in football. One fan of this work is Patriots' coach bill Belichick, who recently applied Romer's analysis.
Click here to see Romer's paper which says punting is almost always a bad idea.

So let's look at the decision this time.

By ESPN's tally when the Patriots have Fourth and Two or less they make it an almost staggering 70% of the time.

So given that, lets try the numbers.

Let a win = 1, a loss = 0, and lets make some assumptions.

So we see that going for it may not have been that bad of decision

Oh and BTW, the same weekend the same decion was made in a CFL game, but it worked...and? nothing. No coverage.

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