What Football Teaches Us About Risk Management

Brian Burke runs the excellent Advanced NFL Stats blog. He combs through mountains of data to uncover interesting aspects of the game.

Burke recently completed a big study looking at fourth downs and the advantages of going for it versus kicking or punting. As it turns out, football teams ought to go for it on fourth downs far more than they do.

After crunching tons of data, this is the chart Burke came up with showing the recommended option of what to do on fourth down.

The charts shows that football coaches have been far too risk averse. In fact, if they were to follow the advice on Burke’s chart, I think the number of field goal attempts would plummet.

The lingering question is why are coaches so conservative? Perhaps it has to due with the fact that the future points you might get are abstract, whereas punting down field is obvious.

Bear in mind that the advantage of going for it on fourth down isn’t that you’ll make the first down. Instead, it’s the net result of giving up the ball versus surrendering the ball with a punt farther down field. There are lots of variables in play.

There is a financial equivalent (I’m sure you were waiting). What Burke’s study is really looking at is risk management. That’s what a lot of investing is about as well. The question investors need to ask isn’t if Dell (DELL) is a good investment. Instead, is Dell a good investment given its risk compared with other investments with similar risk?

Behavioral economists have shown that we’re not so good at measuring probabilities. We’re far more likely to horde what we have rather than risk an uncertain payoff (See here where I asked: Which would you choose; $1,000 guaranteed or a 50% chance at making $3,000?)

For many years now, gold has outperformed stocks and Treasuries have beaten stocks for decades. According to conventional wisdom, that’s not supposed to happen but it did. Punting on fourth down is conventional wisdom so it will take a brave coach to be the first one to challenge this orthodoxy.

Comments

[Roger Knights:]

It's because Seattle's coach Holmstrum (sp?) didn't go for it on 4th down a few years ago that it lost a crucial playoff (or Superbowl?).

Sep 17 10:43 AM

[Tony Petroski:]

It's always fun to mix in football with investing, but I'm not sure the author pulled it off. The article ends with:

"For many years now, gold has outperformed stocks and Treasuries have beaten stocks for decades. According to conventional wisdom, that’s not supposed to happen but it did. Punting on fourth down is conventional wisdom so it will take a brave coach to be the first one to challenge this orthodoxy."

Isn't buying gold or treasuries the inventment equivalent of a punt? The end of the article suggests one should "challenge the orthodoxy" and then punt on fourth down.

Why do the coaches always punt when the crowd wants them to go for it? Because NFL coaches are drawn from a very tight group, they almost all think and act the same way, and punting on 4th down because the "smart" play for coaches just like "never take points off the board" is the conventional play. NFL coaches almost always do the conventional.

I checked the chart out. It suggests the field goal is the smart play from 3 yards or so on in (vs. going for it on 4th down). I question that wisdom as well. It's true your field goal will usually get you a sure 3 points vs. getting stuffed near the goal line, but so often a team scores a touchdown on the next possession as the "stuffing team" is forced to punt deep in it's own end and the receiving team is soon nearing the goal line again.

Sep 17 11:35 AM

[John Galt:]

I agree coaches should be more aggressive going for it on 4th downs, but I disaree with the chart. Go for it on 4th and 9 from the 30 yard line? Really? You can't just take the past probability of success ( conversion) and stimulate a risk/reward value.

The only times teams really do probably go for some of these extreme 4th and longs is at the end of games when they are franticaly trying to move down the field against another teams prevent defense. That's far different than drawing a 4th and 9 in the first quarter when you can easily kick a FG.

Also different situations reflect different ways the defense will defend you. 4th and 1 from the goal line will bring up a goal line defense in an all reality that 1 yard will probably be harder to gain than say 4th and 3 from the 40 yard line when you are in shot gun formation with the defense spread out.

Basically, I question the authors methods as there are so many variables that I think his probabilities are off.

Sep 17 02:42 PM

[Eddy Elfenbein:]

The article compensates for that by only looking at data from the first and third quarters. You really ought to read a study before you criticize it.

Sep 17 03:05 PM