Failure Hovers Close to Greatness
/In 2015, Pete Carroll, then head coach of the Seattle Seahawks, was vilified for an awful play call. This wasn’t any ordinary call. It was a call made with 26 seconds left in Superbowl XLIX, with the Seahawks down by four. The Seahawks had the ball on New England’s one yard line.
Annie Duke, in her book Thinking in Bets: Making Smarter Decisions When You Don’t Have All the Facts, describes what happened next:
Everybody expected Seahawks coach Pete Carroll to call for a handoff to running back Marshawn Lynch. Why wouldn’t you expect that call? It was a short-yardage situation and Lynch was one of the best running backs in the NFL…Instead, Carroll called for quarterback Russell Wilson to pass. New England intercepted the ball, winning the Super Bowl moments later.
The headlines the next day were brutal:
USA Today: “What on Earth Was Seattle Thinking with Worst Play Call in NFL History?”
Washington Post: “‘Worst Play-Call in Super Bowl History’ Will Forever Alter Perception of Seahawks, Patriots”
FoxSports.com: “Dumbest Call in Super Bowl History Could Be Beginning of the End for Seattle Seahawks”
Seattle Times: “Seahawks Lost Because of the Worst Call in Super Bowl History”
The New Yorker: “A Coach’s Terrible Super Bowl Mistake”
To the average person, the headlines delivered poetic justice for such a dreadful play call.
But to a select few, the criticism was flawed, if not wholly unwarranted.
Annie explains why:
Pete Carroll was a victim of our tendency to equate the quality of a decision with the quality of its outcome. Poker players have a word for this: “resulting.” When I started playing poker, more experienced players warned me about the dangers of resulting, cautioning me to resist the temptation to change my strategy just because a few hands didn’t turn out well in the short run.
Carroll got unlucky. He had control over the quality of the play-call decision, but not over how it turned out. It was exactly because he didn’t get a favorable result that he took the heat. He called a play that had a high percentage of ending in a game-winning touchdown or an incomplete pass (which would have allowed two more plays for the Seahawks to hand off the ball to Marshawn Lynch). He made a good-quality decision that got a bad result.
Annie Duke is a former professional poker player. She had a front row seat to “resulting,” which often occurs after a bad beat: You had the best hand, the odds loaded in your favor, but bad luck struck, and you lost. A good decision was met with a bad outcome. Resulting is the tendency to abandon good strategies just because of bad luck. In poker, just like in football and in life, it’s only a matter of when, not if, it happens.
Maria Konnikova, a fellow poker player and author of The Biggest Bluff: How I Learned to Pay Attention, Master Myself, and Win, explains her painful introduction to the world of bad beats. After she busted out of a tournament with a great hand, her coach, famed poker player Erik Seidel, lectured Maria on dealing with a bad beat. Here’s what Erik said:
“Stop,” he says...I stop, a bit confused. We haven’t even gotten to the good (or, rather, bad) bit. And it’s very unlike Erik to cut me off. He’s one of the best listeners I know. I look at him expectantly. “Do you have a question about how you played the hand?”
“Well, not really,” I answer. “I mean, I had a set…” “Then I don’t want to hear it.” I’m taken aback. “Look, every player is going to want to tell you about the time their aces got cracked. Don’t be that player,” he continues. “Bad beats are a really bad mental habit. You don’t want to ever dwell on them. It doesn’t help you become a better player. It’s like dumping your garbage on someone else’s lawn. It just stinks.” Well, that certainly gets the point across. But aren’t I allowed to vent just a bit? As it turns out, no, no I’m not.
“Focus on the process, not the luck. Did I play correctly? Everything else is just BS in our heads,” Erik tells me. “Thinking that way won’t get you anywhere. You know about the randomness of it but it doesn’t help to think about it. You want to make sure you’re not the person in the poker room saying, ‘Can you believe what happened?’ That’s the other people.”
Don’t be the “other people.” Bad beats are a fact of life. Resulting is not. Cope with bad beats through acceptance, not bad thinking.
Poker players, just like football coaches, operate in an environment where good decisions are met with bad outcomes. It’s an unavoidable part of making decisions under uncertainty. It’s not something you can outwork or solve. The best you can do is improve your decision-making process and load the odds in your favor. The outcome is never guaranteed and is out of your hands.
Commentators, pundits and the average fan love the comfort of resulting. To them, the world is so simple and predictable. What a feeling of superiority it must be to judge after the fact and eviscerate the person based on just the outcome, with no consideration of the pressure, adversity, randomness, nuance, and uncertainty that complicate the decision-making process.
Resulting is a trap that provides the illusion of certainty and control in an unpredictable world.
Annie Duke explains why resulting is such an easy trap to fall into:
To start, our brains evolved to create certainty and order. We are uncomfortable with the idea that luck plays a significant role in our lives. We recognize the existence of luck, but we resist the idea that, despite our best efforts, things might not work out the way we want. It feels better for us to imagine the world as an orderly place, where randomness does not wreak havoc and things are perfectly predictable. We evolved to see the world that way. Creating order out of chaos has been necessary for our survival.
Konnikova continues:
…Bad beats drag you down. They focus your mind on something you can’t control—the cards—rather than something you can, the decision. They ignore the fact that the most we can do is make the best decision possible with the information we have; the outcome doesn’t matter. If you choose wisely, you should make that same choice over and over. Focusing on the unlucky runout is just toxic…it’s already poisoning your mind and making you less able to execute clearheaded decisions in the future
Former rocket scientist Ozan Varol, author of Thinking Like a Rocket Scientist: Simple Strategies You Can Use to Make Giant Leaps in Work and Life, further explains the problems of resulting:
If we engage in resulting, we reward bad decisions that lead to good outcomes. Conversely, we change good decisions merely because they produced a bad outcome. We start shaking things up, reorganizing departments, or firing or demoting people. As one study shows, National Football League (NFL) coaches change their lineup after a one-point loss, but don’t change it after a one-point win—even though these minor score differences are often poor indicators of player performance. Most of us act like American football coaches, treating success and failure as binary outcomes. But we don’t live in a binary world. The line between success and failure is often razor thin. “Failure hovers uncomfortably close to greatness,” wrote James Watson, the codiscoverer of DNA’s double-helix structure. The same decision that produced a failure in one scenario can lead to triumph in others.
While resulting is common in sports and poker, it’s pervasive in the investing world.
The evaluation of teams, managers, and stocks are almost entirely judged by looking at the outcomes (performance) rather than the process (decision making). No one admits this, but if you listen close enough, the concerns almost always trace back to performance.
I’ve seen investment teams, with the same process, philosophy, and team, outperform in a year and are deemed geniuses by the investment world. Funds flood into the strategy. CNBC Interviews are lined up. Articles are written in the Wall Street Journal.
However, when they underperform the next year, they are disowned. Their strategy is relegated to watch/termination lists. Investors wonder how they’ve lost their touch and how they will fix this problem. The same media that praised them last year now lambast their subpar strategy. Everyone wonders, “What’s gone wrong?”
I’ll tell you what went wrong. Nothing. Nothing changed from year to year. No change to the team. No change the process. No change to the philosophy. Only the performance changed, which we know is governed by randomness in the short run. Yet, that doesn’t stop the industry from “resulting” by trying to grasp at something, if anything, to explain performance variation.
Investment managers, like athletes, are never as good as they seem when they are winning and are never as bad as they seem when they’re losing.
It’s a concept people just don’t get.
Remember Watson’s advice: failure hovers close to greatness. Greatness and failure are a packaged deal. The same process that produces greatness also produces failure. You’ll only find out after the fact. Focus on making the process the best it can be and ignore the outcome.