# What Can Investors Learn From Goalkeepers?

November 10, 2008

Table 2: Success Rate Of Goalkeepers Stopping Penalty Kicks

 Kick Direction Goalkeeper's Success Rate Jump Direction Goalkeeper's Success Rate Left 17.4% Left 14.2% Center 13.4% Center 33.3% Right 13.4% Right 12.6% Total 14.70% Total 14.7%

Altogether, goalkeepers succeeded in stopping 42 penalty kicks—14.7% of all the kicks that were examined. The overall success rate of stopping penalty kicks is very low and most kicks result in a goal being scored. The left column shows that there is no connection between the success rate in stopping the kick and the direction of the kick. The success rate is very similar regardless of the direction of the kick.

On the other hand, an analysis of the 42 successes (shown in the right column) shows that the success rate of staying in the center (e.g., doing nothing) is more than double than the success rate of jumping to either direction.

Thus it seems that the decision made by the goalkeepers in 94% of the cases—to jump either to the right or the left—was not rational, since it decreased their chances of stopping the penalty kick.

Why does it happen? The researchers provide the following explanation:

An identical negative outcome (a goal being scored) is perceived to be worse when it follows inaction rather than action. The intuition is that if the goalkeeper jumps and a goal is scored, he might feel "I did my best to stop the ball, by jumping, as almost everyone does; I was simply unlucky that the ball headed to another direction (or could not be stopped for another reason)." On the other hand, if the goalkeeper stays in the center and a goal is scored, it looks as if he did not do anything to stop the ball (remaining at his original location, the center)—while the norm is to do something—to jump. Because the negative feeling of the goalkeeper following a goal being scored (which happens in most penalty kicks) is amplified when staying in the center, the goalkeeper prefers to jump to one of the sides, even though this is not optimal.

The researchers call this behavioral phenomenon an "action bias."

What can we learn from this research on the behavior of investors during a bear market?

When the market goes down, investors start to see losses on paper that cause them a significant mental pressure. The future direction of the market is uncertain and investors have to make decisions that will have a significant impact on their well-being in the future.

Is the massive sell-off of equities during a bear market merely a result of investors' action bias? An emotional reaction to a difficult situation that makes them "do something," while rational analysis likely suggests doing nothing?

It seems to me that the answer to this question was given by Benjamin Graham in his book "The Intelligent Investor":

The investor with a portfolio of sound stocks should expect their prices to fluctuate and should neither be concerned by sizable declines nor become excited by sizable advances. He should always remember that market quotations are there for his convenience, either to be taken advantage of or to be ignored. He should never buy a stock because it has gone up or sell one because it has gone down. He would not be far wrong if this motto read more simply: "Never buy a stock immediately after a substantial rise or sell one immediately after a substantial drop."

Elli Malki is an economic consultant and the editor of http://www.inbest.co.il/, an Israeli Web site that provides a decision support service for savers and investors. He can be reached at [email protected].