Loss Aversion’s Impact on Coaching and Sponsorship

BY ADAM GROSSMAN

A recent The Wall Street Journal (WSJ) post contained the provocative headline “Football Coaches Are Still Flunking on Fourth Down”. This post demonstrates how NFL coaches are “still too conservative on fourth down” because they instruct their teams to punt or kick a field goal when the math states that going for it actually increasing the chances of winning a game.

This post is particularly surprising because research has been done on this specific topic for years. It is now so clear from a mathematical perspective when to go for it that New York Times (NY Times) created the NYT4thDownBot. Why would coaches, as former NFL coach and current Arizona State University coach Herm Edward said, not “play to win the games?”

Increasing risk by making conservative choices is actually a common occurrence both inside and outside of the sports industry. In fact, it is arguably the driving force behind the creation of the field of behavioral economics and two recent and famous noble prize winners in the field (Richard Thaler and Danny Kahneman).

The critical insight of behavioral economics is that people frequently do not make decisions that maximize their utility. One of the most common reasons for this is loss aversion where people place much more significance losses than they do on gains. For example, the joy of winning a game by 1 point and pain of losing a game by 1 point should be equal. Most sports fans believe (and research confirms), however, that losing game by 1 point feels much worse than winning a game by 1 point.

Loss aversion is likely the primary reason that coaches still make conservative choices on fourth down. The WSJ post states that taking the mathematically optimal approach to fourth down adds 0.4 wins per season as compared to the conservative choice. As context, Block Six Analytics’ (B6A) Revenue Above Replacement (RAR) found that wide receiver Antonio Brown contributed 0.34 wins throughout the course of the 2018 season.

So why do coaches not go for it when it can impact a season more than player such as Brown? The narrative around fourth down plays is often that they are the deciding plays of a game. In particular, owners, general managers, and fans have traditionally (and often still do) see failures on fourth down when going for it as the specific reason a team lost a game.

That is particularly important because a coach’s highest priority is frequently job security. While winning games is often the best way to maintain job security, it is not the only way. Avoiding blame from “risky” decisions is another. Coaches rarely receive blame by not going for it on fourth down by owners, general managers, and fans for taking the conservative approach because nothing is “lost” from their perspective. Therefore, the conservative choice makes sense for coaches since the perception of losing one game has more significance than the reality of 0.4 wins during the season using the optimal approach.

Using the loss aversion frame can also be applied to the sponsorship industry as demonstrated in a John Wall Street post on Endeavor Audio and podcasts. The post states that podcasts receive a “fraction” of the revenues that brands spend on television advertising because podcast “listener numbers are not yet comparable to the television viewing audience.”

However, the post later states that “podcasting also gives advertisers the ability to reach a younger demographic with +/- 50% of millennials and Gen-Zs now listening to on-demand audio content.” In addition, 35% of podcast listeners have incomes of over $100,000. As context, our Audience Inference Platform (AIP) found that 22% of the population overall has incomes over $100,000. Research has also shown that 80% of podcast audience listens to all or most of an episode.

Yet, decision-makers at companies will often examine sponsoring podcasts from a loss aversion perspective. In this case, the conservative approach is to spend advertising on television while optimal approach is to sponsor a podcast. However, being optimal is not enough to drive a decision because the gain of the right audience in a new channel is often perceived as not as significant as the potential loss of audience size in a traditional one.   

This makes a podcast recommendation the risky choice even if it is the right one. The best way to change this dynamic is to understand this challenge and arm people with the tools and language to address potential loss aversion issues. B6A’s uses our Corporate Asset Valuation Model (CAV) and Partnership Scoreboard to achieve this result.  

In the podcast example, many companies are looking is to more effectively reach young, affluent demographics with engaging content. The CAV shows quantitatively what lifts in brand engagement, sentiment, and awareness when reaching this demographic through podcasts have on maximizing revenue growth. The model also shows why maximizing audience size is not always effective and why companies our losing value by focusing solely on this metric. We then create insights in our Partnership Scoreboard using words, videos, images, and data that provide a clear narrative that resonates with an organization’s senior leadership to address loss aversion concerns.

In a recent Tweet, Thaler stated that the NY Times “bot is way better than any coach” in determining when to go for it on fourth down. For the foreseeable future, however, people are going to make important choices that impact sports organizations on and off the field. Understanding how people make decisions can help minimize loss aversion challenges and maximize the likelihood of making the right choice.