Coronavirus: beat the behavioural gremlins #5


(Wednesday, Apr, 15, 2020)
|   6 mins

Stand still or jump?

As an Englishman of a certain age, I have a difficult emotional relationship with the penalty kick. It has the power to evoke many unconscious behaviours, particularly in the knockout stages of an international competition. As my teenage daughters have pointed out, middle-aged men should simply not be hiding behind cushions.

But the penalty kick and the behaviour it creates in goalkeepers, can tell us something interesting about a challenge facing investors right now. In particular, how the unprecedented global response to the pandemic might be creating unconscious pressure to tinker with our investment strategies.

The penalty kick problem

To try and stop a penalty kick, a goalkeeper has three choices. To jump left, jump right or to stand still. Several years ago, researchers undertook a project to understand the success of different strategies and what influenced goalkeepers’ decisions.

They started by compiling data and examined over 300 penalty kicks from worldwide leagues and competitions. The table below shows the joint distribution of the kicks and the goalkeepers’ reactions.

Stand, Straight or Jump?

So if we look along the top row of the table, we see that 18.9% of the time that the ball was kicked left and the keeper jumped left, 0.3% of the time the ball was kicked left and the goalkeeper didn’t move, i.e. stayed in the centre, etc.

What was the most successful strategy?

To provide a probability of stopping a kick, the researchers assessed the total number of balls stopped in each direction and then divided it by the total number of jumps in that direction.

Joint Probability - Jumps and kicks table

For example, goalkeepers jumped left 141 times and stopped 20 balls when jumping left, yielding a 14.2% stopping rate. Statistically, the best chance for the goalkeeper is simply to stand still (33.3%). But as the earlier table above shows, this very rarely happens.

The researchers suggested that the reason that goalkeepers don’t stand still is ‘action bias’. As can be seen in the data, the usual thing to do is to take action, i.e. jumping, rather than inaction – staying in the centre.

Joint Probability - Stopping a kick table

So what can goalkeepers’ behaviour tell us about investment decision-making? First, take a look at the classic psychological experiment below:

Who feels most regret?

Who did you think will feel more regret? Both George and Paul ended up with exactly the same financial result, but in the experiment, 92% of people thought it would be George. This was because George had taken positive action rather than staying with his default position.

What explains the experiment above and the goalkeepers’ behaviour? The researchers suggest that the answer might be found in ‘norm theory’. In simple terms, norm theory seeks to explain the factors that drive us to take action, or do nothing, when faced with a choice.

There is a large body of research that suggests when things go wrong, we are generally biased to feel worse about actions that we have taken, rather than inaction, even if it leads to the same result. When we need to make a difficult choice, this leads to the temptation to not make a decision, or stick with status quo. Thus, in many cases, doing nothing is the norm.

However, for goalkeepers, the situation is reversed. They feel worse when a goal is scored when they have taken no action, i.e. stood still. Why?

As the researchers note, the goalkeeper might have an internal dialogue such as:

I did my best to stop the ball, by jumping, as almost everyone does; I was simply unlucky that the ball headed in another direction…

But if the keeper stands still, it may look like he did nothing to stop the ball and he will have failed using a different approach to his peers. This narrative provides motivation to jump, although there is clear data this is not a good strategy.

Stand still or jump in the current investment environment?

For most of the decisions that investors have to take, the norms are not as clear as they are for goalkeepers.

However, the global reaction to the pandemic has seen action and change in almost every aspect of our personal and professional lives. There is every possibility that this unprecedented focus on action and change will create unconscious norms in our investment behaviour. For example, “We are making change everywhere else in our lives, shouldn’t we be changing our portfolio to reflect what’s happening?”

This was seen very clearly recently when one of my colleagues observed a chairman of an investment board urge his trustees to “Stop being spectators!”

Investment decision-making right now – stand still, or jump?

The impact of Coronavirus on investor sentiment has resulted in violent sell-offs in almost all risky assets, followed by equally violent bounces. Last week was characterised by widespread commentary that it would be complacent to think that the lows won’t get retested. So in this environment, should you stand still or jump?

This will depend on many factors, including your objectives, risk capacity and the current nature of your portfolio. Given the varying needs of investors, I have set out some thoughts below that are widely relevant.

Have a clear framework: As I discussed in last week’s piece on regret, an important factor in making effective decisions in adverse circumstances is being able to justify our choices.We use a simple framework that helps our clients clearly understand if and where they need to ‘jump’, or why it might make sense to ‘stand still’. A second benefit of the framework is that it helps navigate the pressures that are created with a quarterly reporting cycle. Even though short-term data contains a lot of noise, there can be a constant pressure to understand and investigate it. Our experience is that a clear framework can help keep everyone focused on the most important issues and lead to more productive discussions and timely decisions. Contact me if you’d like to understand how this works.

Play the odds: At any point in time, investors have a wide range of investment choices available to them. Not all choices have equal chance of success, or are equally important for meeting your objectives. When there’s a wide range of things that you could do, ensure your investment adviser articulates a clear view of which choices should reliably lead to better outcomes for you (rather than the stories and ideas that are receiving the most attention in the press).

Opportunities – can we execute them well? Some opportunities will be more time sensitive than others. If your decision-making and implementation structure isn’t geared up to make well-reasoned choices quickly, then you may end up taking the ‘right’ decision too late. To ensure that the ‘right decision’ doesn’t turn into the ‘wrong result’, work with your adviser on opportunities that have timescales that match your decision-making and implementation capacity.


With a well diversified and risk-managed portfolio, the sensible route for lots of investors may simply be to ‘stand still’. Many of our clients will do this, with some prudent changes at the margins.

However, standing still should not be confused with my penalty strategy of ‘hiding behind the cushion’. This is a point in time where all investors should actively be reviewing their portfolio and working with their advisers to understand if there are opportunities to be taken, or risks that need to be managed.

Change may or may not be sensible. The crucial thing is not to be the average goalkeeper and jump because you feel you should.

As always, both the science and practice of real-life decision-making (and penalty kicks!) is more complex than a blog post allows. If you’re a pension fund trustee or other institutional investor and would like more information, feel free to get in touch.


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