June 19, 2014
This article starts with a feeling. That feeling being the one you get when you contemplate a particular type of trade offer—a fair trade offer. You know the feeling I am talking about, I know you do. The exhilaration and excitement come first, but these feelings are quickly washed over by another, stronger feeling—fear. At this point, you are beyond the constructive weighing of pros and cons; your mind is simply racing with every conceivable negative outcome. Maybe your fears are like mine, and maybe they sometimes go something like this:
“This guy throws sliders 30 percent of the time and his mechanics aren’t great. Is he due for a DL stint?” “I know 32 is not that old, but he did play in 15 less games in 2013 than he did in 2012.” “Is his strikeout rate trending the wrong way?” “This guy’s true talent is better, but he has the same amount of homers that my guy has right now. Is it really an upgrade?” “I’m trading away current production for potential future production that might never be realized. This might end up looking really bad for me.” “Am I giving up too much with no guarantee that this will significantly improve my team?”
Sometimes we are able to figuratively douse ourselves with cold water, get back to the information that really matters, and make a good decision. Other times we do not and, consequently, trades that should be made are not made. I have both passed on offers I should have accepted and made trade offers that I am glad the recipient did not accept. Passing on a beneficial trade is an incredibly impactful mistake that happens more frequently than it should. In an attempt to reduce the frequency with which we make this mistake, let us take a look at how we get into this mess and then take a look at how we can try to avoid it. In order to do so, we are going to take a look at the work of Gerd Gigerenzer, a psychologist and author of Risk Savvy: How to Make Good Decisions.
To give some background, Gerd Gigerenzer is not a made up German character from The Rocky and Bullwinkle Show. Gigerenzer’s work is on bounded rationality and heuristics as they relate to decisions. While his findings are often pitted against those of my main-person, Daniel Kahneman, I am not here to discuss the disagreements. Rather, Gigerenzer has keen insights on risk and uncertainty, which are very important for our trade paralysis discussion. To the causes we go.
“A person or group ranks option A as the best for the situation, but chooses option B to protect itself in case something goes wrong.”
While defensive decision making might be rational or justified from a fitting-in-with-society or evolutionary stand point, it is certainly not beneficial from a fantasy baseball standpoint because it will cause us to pass up on opportunities to improve our team.
Traceability, uncertainty, and deferability are a bad cast of characters to be up against when trying to successfully overcome trade paralysis, but there are some helpful insights from both Kahneman and Gigerenzer that can help us combat trade paralysis. The causes of trade paralysis can be divided into two sections: (i) irrationality and (ii) uncertainty. Traceability and deferability go in the irrationality bucket, while uncertainty, believe it or not, goes in the uncertainty bucket. Through Kahneman we find the importance of using analytical (as opposed to emotional) thinking which will help us combat irrationality and through Gigerenzer we find the importance of heuristics in selecting relevant information which will help us navigate uncertainty. To the ways to combat these causes we go.
Combating traceability and deferability:
The answers to these questions will tell us if we should pull the trigger on a trade. Before I go on, a fair question to ask would be, “how do these questions strip out our irrational fears?” To answer, Questions 1, 2, and 3 help us to weigh all of the outcomes rather than fixating on the worst case scenarios. More importantly, these questions make us focus on the utility of our decision instead of how it will be perceived by others. Question 4 makes sure we are weighing the costs of deferring the decision. Is this process perfect? No, but these questions should help remove some of the irrational and paralyzing fears that are stopping us from making good decisions.
Combating the fear of uncertainty:
Gigerenzer points out that “experts often search for less information than novices do.” In other words, experts know from experience the best heuristics to use. The important question then becomes, how do we know which heuristics are best? The only way one truly becomes an “expert” is through trial and error. If that is not a comforting solution, then you can try to expedite the trial and error process by constantly analyzing your process and the heuristics you are using in order to more quickly identify what works and what does not work. And if you still do not feel comfortable dealing with uncertainty, then you can find someone you trust as an expert and ask them for advice on your decisions. If you go this route, know that you are less likely to make yourself better at dealing with uncertainty just as a passenger is less likely than a driver to learn how to get to a new destination. As I said earlier, I do not really have a good answer for this one, but as I continue to learn I will hopefully find a better answer. Until then, you can battle fear with fear; keep reminding yourself that not making a trade (inaction) can hurt your team’s performance just as much as making a bad trade (action).
Much of the inspiration for this topic comes from the very excellent Farnam Street blog (www.farnamstreet.com). Shane Parrish does an excellent job covering all kinds of topics. It is also a great place for book recommendations.
Gigerenzer, Gerd. Risk Savvy: How to Make Good Decisions. London: Allen Lane, 2014. Print.
Kahneman, Daniel. Thinking, Fast and Slow. New York: Farrar, Straus and Giroux, 2011. Print.
Tversky, A., and D. Kahneman. "The Framing of Decisions and the Psychology of Choice.” Science 221.4481 (1981): 453-58.