Broken Clocks

September 26, 2012  |  Finance, Other, Politics, Sports, Uncategorized

In our last post, we highlighted our preference for “second acts”, which we defined as repeated success in different environments. We focused on repeated success in that discussion. Here, we will delve into the second component of the definition: different environments.

As with broken clocks, which are right twice each day, many pundits make the same prediction over and over, knowing that they will be intermittently correct. The stock market offers an ideal breeding ground for this type of pundit, given its long cycles and binary outcomes (the market is either up or down). Those who are always optimistic on the stock market (known as “perma-bulls”) are right during bull markets, while those who are always downbeat (“perma-bears”) are right during bear markets. Both groups are anointed as gurus when the environment happens to be in their favor, but they are dead wrong during the other cycle. The behavioral elements discussed in our One-Hit Wonders post are again at play: recent, vivid, and unusual information are front-loaded in our brains. But another bias comes into play here: the “fundamental attribution error.”

The fundamental attribution error refers to the idea that when explaining successes and failures, we tend to overweight the role of the individual and underweight the roles of chance and context. For instance, in the early 2000s, much ink was spilled in lauding Terry Semel and Meg Whitman (then CEOs of Yahoo and eBay, respectively) as superstar executives. The alternative explanation — that these CEOs were running companies that happened to be at the right place at the right time — never received much thought. That’s not surprising, given that cause-and-effect, character-driven narratives are inherently much more appealing than chalking things up to good fortune.

Similarly, rather than considering that some pundits offer a static viewpoint which happens to coincide with an existing cycle, we elevate them to oracle status. We hope PunditTracker will help distinguish those pundits with the mental flexibility to provide insight in different environments from the broken clock crowd.

One-Hit Wonders

September 26, 2012  |  Finance, Other, Politics, Sports, Uncategorized

At PunditTracker, we place extra weight on second acts: people who demonstrate repeated success in different environments. Examples include former Apple CEO Steve Jobs and NFL coach Bill Parcells.

Just as half-truths are more dangerous than outright lies, the most dangerous pundit is the one who parlays a single correct call into guru status. While the media plays a central role in this game, our brains are culpable as well. Behavioral studies reveal that certain types of information have an outsized grip on our memory, including that which is recent, vivid, and unusual. This explains why we: (1) buy earthquake insurance after a (recent) earthquake, (2) believe that more people die from homicide (vivid) than from stomach cancer, (3) complain that we always get stuck in the slowest-moving line (unusual) at the grocery store.

The pundit playbook fully exploits this dynamic. To understand how, let’s place ourselves in the shoes of a pundit.  What is the best way to make a call that meets all three criteria: recent, vivid, and unusual? Well, recent is easy—just make a lot of calls. That way, there will always be a fresh one out there. And vivid is just another word for bold. So if we make bold calls frequently, we are two-thirds of the way there. But how about unusual?

The beauty of the pundit playbook is that unusual takes care of itself. Bold calls are typically incorrect, so the correct ones are by definition unusual. Said differently, bold calls that turn out wrong are less likely to be remembered because they fail to meet the unusual threshold. Pundits are therefore entirely incentivized to churn out brash predictions, knowing that only the correct ones will stick in our mind. And because we tend to confuse ease of recall with frequency, we develop a warped sense of the pundit’s batting average.

This phenomenon is found in all walks of life, including sports. NBA guard Chauncey Billups, for instance, has been dubbed “Mr. Big Shot,” presumably because he has hit many clutch shots in his career. A closer look at the numbers, however, suggests that Billups’ nickname might be undeserved. Data from 82games.com reveals that Billups’ game-winning shot percentage between 2003 and 2008 was a paltry 16% (6 for 37), well below his 42% overall career shooting average. Our hunch is that a few of those game-winners were in high-profile, nationally televised games (vivid), thus sticking in the public’s mind and inflating Billups’ reputation as a clutch shooter.

The real danger comes when actions are taken based on a false premise. In this case, Billups’ inflated reputation is likely to garner him most of his team’s game-winning shot attempts, even though other players would be better options. Teammate Carmelo Anthony, for instance, had a sterling 48% game-winning shot percentage (13 for 27) over the same timeframe.

As anyone in marketing knows, once established, associations are very sticky. This explains how pundits are able to cash in for many years on the “one big call” they got right, despite sporting a terrible track record both before and afterwards. By playing the role of public scorekeeper, we hope that surfacing the data for everyone to see will help expose the one-hit wonders.

PunditTracker.com is now live!

September 26, 2012  |  Finance, Other, Politics, Sports

We are thrilled to announce the launch of the PunditTracker.com website. The blog will continue in its current form, serving to contextualize, analyze, and discuss the content on the main site.

Let us know what you think!

  1. Have a pundit you would like us to track? Or some general feedback on the site? Let us know!