Last week, Daniel Kahneman died at the age of 90. He won a Nobel laureate in economics in 2002 for, “having integrated insights from psychological research into economic science, especially concerning human judgment and decision-making under uncertainty.” While many economists in the 20th century were buried in mathematics, guided by the underlying assumption that humans made rational choices out of self-interest, Kahneman and his colleague Amos Tversky applied their research in cognitive psychology to economics. The result was the birth of a new field of research referred to as behavioral economics.
The new field of behavioral economics has had an impact on more than just economists; it has trickled its way to the sports world too. Perhaps the most famous example is Daryl Morey. Currently president of basketball operations for the Philadelphia 76ers, previously general manager of the Houston Rockets and senior vice president of operations for the Boston Celtics, Morey’s dabbling in behavioral economics is well known thanks to the 2016 book The Undoing Project.
As Michael Lewis informs the reader, during the 2011 NBA lockout, Morey enrolled in an executive education course at Harvard Business School where he would take a class in behavioral economics. Morey was already well-versed in mathematics and sciences. He was an outsider who was brought in and successfully used data-driven approaches to bring value to teams and work his way up. The class had an effect on him, perhaps helping him connect the dots on a lot of the struggles of the human mind he was noticing with himself and his scouts while managing the Rockets.
He and the Rockets would only grow after that lockout. Not only did they help transform basketball, but they went to the Western Conference Finals in 2015 and 2018 and Morey won executive of the year in 2018.
RIP Daniel Kahneman. We lost a legend who showed the light in the maze of our minds. His insights on cognitive biases in decision-making have helped avoid countless bad trades, draft picks, and free agent signings.
-@dmorey, Daryl Morey on Twitter
The Linda Experiment
Daniel Kahneman’s most famous piece of work, Thinking Fast and Slow, has had its influence in the world of hockey as well. As Colorado Avalanche director of hockey analytics, Arik Parnass, said following news of Kahneman’s death, “Daniel Kahneman wrote maybe the best book out there on how to build a winning sports organization and probably never knew it.” Being in the niche realm of hockey analytics for eight or so years now, I’ve seen much of Kahneman’s work being referenced from prospect theory to the endowment effect. However, I never see much reference to one of Kahneman and Tversky’s most controversial experiments - Linda.
Discussed in chapter 15, “Linda: Less in More,” the two created a fictious woman named Linda. The experiment was designed and implemented with the intention of providing, “Conclusive evidence of the role heuristics in judgement and of their incompatibility with logic.” She was described as follows:
Linda is thirty-one years old, single, outspoken, and very bright. She majored in philosophy. As a student, she was deeply concerned with issues of discrimination and social justice, and also participated in antinuclear demonstrations.
When asked which alternative is more probable, between 85 and 90% of respondents found it more probable that Linda was a bank teller and is active in the feminist movement than Linda was a bank teller. Of course, this is illogical. The probability of Linda being a bank teller has to be equal to or greater than that of also being active in the feminist movement because you are able to add the probability that she is a bank teller and not involved in in the feminist movement which must be 0% or greater.
This is where Kahneman introduces representativeness, which is very similar to stereotypes. “Representativeness belongs to a cluster of closely related basic assessments that are likely to be generated together.” The way this relates to the experiment is that, “The most representative outcomes combine with the personality description to produce the most coherent stories.” In this case, after getting a basic description of Linda, adding the detail of being active in the feminist movement made the option more coherent and more plausible, but not more probable. He goes on to say, “Adding detail to scenarios makes them more persuasive but less likely to come true.”
Where this can become alarming in the world of hockey is in scouting. The nature of scouting staffs is far from perfect. Based on logistical limitations, scouts are spread out over regions and are assigned to a limited number of teams in a universe of players. Further to that, they are limited in the number of times they can view different teams and players. Pressed with their limitations of cross-coverage of players, they are inherently tasked to be persuasive.
Scouts pick “their guys” and vouch for them in meetings. They try to convince other scouts and management why their guy is a fit for the team. In order to do so, they add more and more details to create a more connectable, plausible story. As Kahneman exclaimed, that is anti-productive for forecasting. The more details we add in our descriptions, the more the prospect takes on the image of a current NHLer in our head, and the more bias our next observations become. Next thing you know, a third round pick that is undersized but plays with heart is the next Brad Marchand.
No Sunk Costs
Perhaps the lesson we can most easily attempt to apply to our lives from Kahneman is the mindset of having no sunk costs. Kahneman refused to be attached to his ideas. He didn’t just keep an open mind, he craved critique and change.
One of the more unique insights into this comes from Jason Zweig of the Wall Street Journal. Zweig attempted to help Kahneman with Thinking Fast and Slow until he couldn’t bear working with Kahneman anymore. In a 2014 blog post, Zweig wrote this when discussing Kahneman’s editing process.
The next thing you know, he sends a version so utterly transformed that it is unrecognizable: It begins differently, it ends differently, it incorporates anecdotes and evidence you never would have thought of, it draws on research that you’ve never heard of. If the earlier version was close to gold, this one is hewn out of something like diamond: The raw materials have all changed, but the same ideas are somehow illuminated with a sharper shift of brilliance.
It’s like the old saying, “Adapt or die.” For some reason, as humans, we refuse to throw out what we thought we knew even when presented with the evidence that we were wrong. It took years for teams to adapt to four-forward powerplay units even when it was clearly superior. In order to be an early adapter and reap the greatest rewards, you have to be willing to rework what you think works.
Us humans are imperfect. Daniel Kahneman was one of the first to shed light on that. Through his work, the next generations of investors, doctors, and even hockey managers can make better decisions, operating within the bounds of their logical shortfalls.