Monday, March 17, 2008

To Act, or Not to Act: That Is the Question

Like Hamlet, we often face tough decisions without perfect information. In Hamlet’s case, the choice was something like, “My dad was murdered. I think my uncle did it. Now he’s my stepdad. Sigh.” What’s a prince to do? Should he seek revenge? Should he rat out his uncle? Seemingly incapable of making a decision, Hamlet stuck with the default: do nothing and stew.

Maybe Hamlet had the right idea. According to Ofer H. Azar, a lecturer in the School of Management at Ben-Gurion University of the Negev in Israel, inaction may often be a prudent choice in situations where most of us feel compelled to do something.

Mr. Azar studied high-stakes decision-making—not in the boardroom, but on the soccer field, where he collected data on the attempts of professional goalies to block penalty kicks. Regularly faced with huge incentives to block penalty kicks, goalies offer a great proxy for people who routinely make quick, high-pressure decisions. Mr. Azar hoped to see just how rationally people respond to such situations. Surprisingly, he found that goalies facing penalty kicks tended to let their emotions dictate their actions—often leading to detrimental outcomes.

During a penalty kick, the goalie must stand with his heels on the goal line while an opponent kicks the ball from 12 yards away. The goalie cannot move until the opponent has kicked the ball, and there is not enough time for the goalie to watch the shot and react. Thus, goalies must make a choice about where they think the ball will be kicked before the shot is made.

Since the greatest proportion of shots end up near the center of the net, the goalie’s best defense is to stay put. The trouble is, goalies find it very difficult to stay in the middle, simply because it makes them feel they aren’t doing anything. When asked why they jump left or right when it's efficient to stay put, they explain that they would feel worse if they stayed in the middle and the shooter scored than if they had at least jumped one way or the other.

We are not all professional soccer goalies. But we may feel the compulsion to act under pressure. Even if inaction is more efficient, we may take action just so we feel good about doing something. Emotion can play a large part in our decisions, especially high-stakes decisions. Economists may need to reassess the degree to which emotions can influence decision-making. In the same article, Stanford economist Paul Romer says, “How people feel about various kinds of activities means a lot about what they decide to do. In many situations, [economists] just look at the narrow monetary payoffs and forget about the effects of preference or feelings.” To learn more about the blend of emotion and calculation that goes into our decisions, read this article from the New York Times and think about the questions below.

Discussion Questions

1. Apply this logic to high-stakes business decisions made by major corporations. When times are tough, do companies tend to want to do something rather than ride out the storm? Is that always the right decision?

2. What about playing the stock market? How much do emotions play a part in the decisions we make?

3. Identify areas in your own life where emotion plays a part in important decisions. Would the outcomes of your decisions be better if emotion did not play a part?



  • At 8:43 AM, May 05, 2008, Blogger Unknown said…

    I found this posting to be extremely interesting. The relationship between sports psychology and economic decision making was one that I had never before considered. It seems ironic in a way that the overall direction of the economy seems to determine societies overall feeling and emotions. While at the same time, in a free market economy, the overall feeling and emotions of society are the key determining factors in the state of the economy. How often people use emotion rather than logic to make economic decisions seems to me to be the study in part of the unknown or unpredictable parts of economic fluctuation. Why an economy might experience growth when by all logic it should be declining. I feel that the ability to make economic decisions based on emotion and not just on logic can be one of the greatest causes of economic growth and the largest factors in economic decline. It is a double-edge sword. To study human nature in making these decisions based on logic or on emotion brings an explanation as to why certain trends may occur in an economy. Perhaps, just as the goalie, people will take the wild dive to the left on a mere chance rather than stand and do nothing. This may seem logically unsound and unreasonable but I put forward the questions; is it not this very human nature that drives us to act when things are not as we want them? To seek progression and innovation when perhaps by all logic we are told that “things are just that way”? Many times it may not logically match up but what are the alternatives. You may call me an illogical, emotion-driven animal but I would take the dive rather than stand and do nothing with what has been given me.
    In response to the first discussion question regarding business making “high-stake” decisions, I feel that of course there exists a desire to want to do something rather than just wait. By our very nature we do not like to feel that we have no control and doing something makes us feel that to some degree we are able to control something. However, false that sense of control may be! I would say that the decision to act is always the best but that does not mean that a company must decide to act any differently. If a company has a sound strategy and plan for the future they should be able to evaluate economic fluctuations and determine if the company downturn is a result of outside sources or internal problems. Choosing to dive to the side and make major changes in a company’s work plan just because the economy decides to pass through a difficult time is not a logic decision to me. In this case I would say that logic needs to prevail over emotion. However, there exist economic changes that necessitate a company to change their plan or they will not continue to function. This is not being illogical or simply emotion based, it is reacting based on a real and factual outside stimulus from the economy.


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