For years, a few childhood buddies and I, home for the holidays, have partaken in an annual ritual involving a nearby casino and $20 cash. The ritual is a tribute to our high school days, when money was scarce, but hope was abundant. All credit/debit cards are left at home. One Andrew Jackson is all you get. Once it’s gone, it’s gone. For a group of guys in their early 30s, I can’t imagine a more benign, responsible casino trip. Our wives are grateful.
The time limit is 4 hours. It’s a pointless cap. In basketball terms, if 4 hours was equivalent to Wilt Chamberlain’s 100-point game, I can safely say no one has even remotely come close to dropping 81, a la Kobe versus the Raptors circa 2006. For years, the 4-hour restriction has stood the test of time. Tradition is a cruel mistress. More allowance than restriction, I’ve learned 4 hours is simply too much time. Too much time to win some and then give it all right back. No wonder all of us typically file over to the buffet area one by one, sitting dejected, drinking free Coca-Cola, wondering what might have been.
Last year’s trip was no different. Although, I did get to thinking more about the repeated irrationality of my actions. The fact that I’d sit down at the black jack table with the lowest limit (typically $5), cherishing my lone $20 bill. $5 bets would ensue. If I was lucky, $20 might grow to $40 or $50. And if I was really lucky, maybe even $75 or $100. My confidence would swell with my profits. $5 felt like chump change. My bets would grow. $10 or $20 per hand.
“What the heck, why not?” I’d say to myself. “It’s house money after all. Who cares?” Soon, I’d be sipping ice cold Coke over at the buffet. My friends were no different.
As this year’s trip draws closer, I’ve realized we don’t need a time limit. What we need is a profit cap. Just like we can accept losing $20, we need an amount we can also accept winning. Instead, we’ve been giving ourselves 4 hours to let one of the most well-known cognitive biases take hold and drive our decisions.
The House Money Effect, is the tendency for investors (or gamblers) to take more and greater risks when investing (or gambling) with profits. Like all cognitive biases, it leads to mental betrayal in the most critical of moments.
My thoughts, as they are wont to do, come back to sports and the prism through which they’re viewed. We are all so fallible and yet our ignorance, hidden by hubris, blinds us to what’s happening right in front of our eyes. In many ways, we lose $20 at the black jack table for the same reasons we misjudge a trade, over/underestimate a team based on initial perceptions, or assign too much weight to small samples. No one is immune. Not GMs. Not fans. Not media.
Take the Los Angeles Clippers, for example. This past offseason they shipped Chris Paul to Houston. The trade was a net positive for L.A. given CP3 was leaving regardless. However, the Clippers’ optimism avoided some unfavorable truths.
Doc Rivers said, “Losing Chris is tough, because he is a great player. But we have a lot of great players on our team that play so many different ways. That is why Gallo [Danilo Gallinari] is so important to us because, our thought was that if you’re not going to run a point guard-dominated offense, then you got to run a movement offense with versatility. And I think we’ve accomplished that.”
The team also spoke excitedly about acquiring Patrick Beverley, known for his motor, defense, and 3P shooting. No mention was made about the extremely high inherent risk in mortgaging L.A.’s future on players like Gallinari, Beverley, and superstar incumbent Blake Griffin. Checkered injury histories were the dark clouds looming over the Clippers versatile sunny day. The team’s well-laid plans were doomed from the very beginning.
The cognitive bias associated with the Clippers’ actions is called the Ostrich Effect. The name comes from the common (but false) legend that ostriches bury their heads in the sand to avoid danger. For L.A., the ramifications of ignoring an obvious (negative) situation are playing out in real time.
Beverley is out for the season after undergoing right knee surgery to repair a microfracture and torn meniscus. Gallinari has missed 9 of the team’s first 19 games with a strained left glute. At this point, it would only be fitting if Blake Griffin were the next domino to fall. Oops. He is. Griffin is out for two months.
Of course, the Clippers are easy targets. If Beverley and Gallinari were healthy and the team was 11-8 instead of 8-11, which was entirely probable before the season started, the argument above wouldn’t exist. Nonetheless, it currently serves as a prime example of how avoiding negative information via the Ostrich Effect might be the ultimate sin for teams. But fans and media are just as guilty, repeatedly making their fair share of screw ups as well.
Look no further than the Oklahoma City Thunder and Indiana Pacers, two teams intimately intertwined by their offseason dealings. If the playoffs were to start today, Indiana would snag a 6-seed in the East, OKC would be on the outside looking in in the West. This is a surprise to many. But the real problem lies in our preseason expectations of each team.
People raved about the Thunder basically “stealing” Paul George from the Pacers and following that move with the addition of Carmelo Anthony. Few offseason grades rated OKC’s moves any less than an A+. Meanwhile, the “should/could have gotten more for Paul George” amidst likely “tanking” scenarios dominated Indiana’s narrative. These drastically different expectations, one high, the other low, now feed our current perceptions.
How could the Thunder be this bad? How can the Pacers be this good? The superstars can’t gel. Victor Oladipo and company are playing out of their minds. This isn’t what we expected!
There’s a name for this. It’s called Selective Perception. In a nutshell, it’s the tendency for expectations to affect perception.
3 proven All-Stars on one roster immediately means winner. An unproven, young roster seemingly in flux indicates struggle. Our minds have been conditioned this way. When things don’t go as expected we act surprised, like we never could have seen it coming. We overcompensate.
The Thunder are perceived as worse than they actually are. The Pacers better. ESPN’s FiveThirtyEight NBA projections provide a bit of a reality check. The Thunder, even at 8-12, are assumed to win 47 games with an 85% chance of making the playoffs. The Pacers, although better than we initially believed, are still just a 43-win team with a 67% chance of making the playoffs.
Another example of fan and media bias involves the Boston Celtics’ recent 16-game win streak. Google “Boston Celtics win streak” and an article about the team eclipsing 72 wins is bound to pop up. Two biases come into play here. The first, is the Clustering Illusion.
This is the tendency to overestimate the importance of small runs, streaks, or clusters in large samples of random data. A 16-game win streak over the course of an 82-game season certainly applies.
The second, is the Focusing Effect, which is the tendency to place too much importance on one aspect of an event. In Boston’s case, the focus becomes the win streak itself. Not the quality of basketball being played.
Celtics’ Head Coach, Brad Stevens, was adamant about this point following Boston’s 14th win in a row, a 92-88 triumph over the defending champion Warriors.
“We’ve got to be better, and we know that,” Stevens said. “We can’t get so caught up in the results of all these games and ride that emotion. We’ve been fortunate to win a lot of the games in this streak, including Thursday night. If we dig ourselves a 17-point hole every other game, it’s not going to be as much fun as we’ve had recently.”
After Boston reeled off 12 straight wins, an ESPN article titled “Can the Celtics Keep It Up and Contend for a Championship” by Kevin Pelton provided a sensible breakdown. Pelton spoke of the Celtics middling offensive rating (18th at the time) and otherworldly defense, aided by teams making fewer shots against Boston than we’d expect through 14 games, according to a number of advanced metrics. Pelton also touched on the team’s “clutch” performances, attributed almost entirely to Kyrie Irving’s exceptional production, arguing that the Celtics can’t sustain winning nearly 80% of their games decided by 10 points or less.
Stevens and Pelton made arguments founded in reality. In both instances, they intelligently disconnected themselves from a small sample winning streak and focused on measurable facts that touched on a deeper understanding of the game. And it’s these measurable facts that have the ability to clear a clouded mind fixated on surface level results.
Circling back to blowing $20 at the black jack table, I vowed to my friends this year’s trip would be different. Out with the old, in with the new. Forget about 4-hour time limits. $80 profit, $100 net, we walk. I argued the validity of my “novel” rationale. My friends, eager to ditch their losing ways, quickly accepted.
A couple hours later, the last of us, sulking, empty-handed, arrived to the buffet area with a fresh fountain Coke. What had happened?! We had a plan! 3 out of the 4 of us had reached our goal of $80 profit and then proceeded to do what we had always done, get greedy, and bet big. The House Money Effect had taken hold. From there, it didn’t take long to spiral back to $20, and finally $0. On a positive note, the Coke was still free.
The scariest part of all is you too will fall victim. Over and over again. After reading this article, it is likely you will acknowledge your newfound wisdom about the inner workings of the mind. Its deceit. Its betrayal. How it masterfully manipulates each decision you make, sometimes resulting in bad outcomes. But that acknowledgement won’t be enough.
That is because according to Harvard Business School professor Gerald Zaltman, 95% of all cognition occurs in the subconscious mind. I might consciously know that the House Money Effect screws me over at the casino time and again, but my awareness in the moment fades. Emotion takes control, the brain begins operating on autopilot. Another hand and another. And another after that. And before long, I’ve lost my $20, Doc Rivers has lost his President of Basketball Operations title and (perhaps) his coaching job, and some basketball “expert” is talking Boston Celtics, 72-win season.
Back in September, I wrote an article detailing how cognitive biases lead to NBA draft mistakes. My argument hinged on how analytics in the NBA (and sports, in general) can fail us. I closed with a Socrates quote (“I know that I know nothing.”) followed by, “Ultimately, awareness is everything.” I don’t rescind that statement, but I definitely question it.
What if awareness isn’t everything? What if even the smartest minds are aware of their shortcomings, yet continually fail more often than not?For now, I’ve concluded that maybe it’s best to view decision-making in sports (and life) like hitting a baseball. If you’re batting .300 that’s pretty dang good.