Penalty shoot outs and economic decisions

Sometimes doing nothing makes really good sense!

The penalty shoot out is fertile territory for students of behavioural economics. The risks and rewards are enormous - one missed kick can cost millions of euros or a place in the Premiership. Liverpool fans rarely need reminding of the miraculous comeback against Milan in 2005 topped off by the antics of Jerzy Dudek in the Liverpool goal in foiling three of the Milan spot kicks and taking the Champions league trophy home for the third time.

When should a keeper dive and when should he stay put? Making a penalty save is pretty difficult, the stats tell us that 80 percent of all penalty kicks score.

Economist Mr. Azar, a lecturer in the School of Management at Ben-Gurion University of the Negev in Israel, has been scanning penalties taken in the world’s top leagues collecting information on 311 penalty kicks. Then they computed the probability of stopping different kicks (to the left, the right or center) with different actions (jumping left, right, or staying put) to see which one “maximizes his chance of stopping the ball.”

The research has found that staying in the centre of the goal - rather than making a pre-meditated dive in one direction or the other - brings its reward through the highest probability of making a genuine save. This is reported in today’s New York Times

“According to their calculations, staying in the center gives the goalkeeper the best shot at halting a penalty kick — 33.3 percent, instead of 14.2 percent on the left and 12.6 percent on the right.”

But in reality the goalkeepers stay rooted to the spot in the middle of the goal in only one penalty in fifteen. One of the behavioural explanations for this is focuses on the emotional reaction of other players in the goalkeeper’s team to his or her decision.

“You could have at least made an attempt at a dive”
“Why didn’t you move?”
“He always goes right”!

The article links this study with previous work on behavioural economics which suggests that people have more regrets when they choose to act rather than leave things untouched. For the goalkeeper avoiding the approbrium of his colleagues and the laughter of the crowd in the stadium may be too tempting. There is perhaps an action bias in all of us .... better to make a move and be decisive rather than wait and see what transpires.

“Outside the stadium, Mr. Azar argues that “action bias” can influence not just goalies but also investors as they decide to sell their stocks (action) or leave their portfolio untouched (inaction) during a downturn, and whether a worker chooses to look for a better job or stay put.”

Does any of this relate to the different strategies of the United States Federal Reserve and the Bank of England as they juggle the pros and cons of moving interest rates? Maybe the Bank is adopting the right stance by keeping their powder dry on more aggressive rate cutting?