From Max Bazerman’s “Judgement In Managerial Decision Making”
Lewis (2003) argues that baseball executives were consistently guilty of three mistakes. First, they overgeneralized from their personal experiences. Second, they were overly influenced by players’ recent performances. Third, they were overly influenced by what they saw with their own eyes, when players’ multiyear
records provided far better data.
More broadly, Beane and DePodesta found that expert intuition in baseball systematically overweighted some variables and underweighted other variables. The results made it clear that, in baseball, statistics have outperformed the experts. After allowing intuition to rule decision making in baseball for over one hundred
years, teams are only now replacing their “experts” with nerds who know how to run regression equations. In Lewis’s (2003) words, “the market for baseball players was so inefficient, and the general grasp of sound baseball strategy so weak, that superior management could run circles around taller piles of cash.” Following
Beane’s success, many teams tried to hire DePodesta as their general manager, and most teams learned to rely more heavily on statistical analysis to predict players’ future performance (Schwarz, 2005).
The story of the Athletics’ success raises some interesting questions. Why did it take so long for rationality to enter into decision making in baseball? To what extent are managers in other industries still relying on false expertise when better strategies exist? As Thaler and Sunstein (2003) note in their insightful review of Moneyball, baseball professionals are not stupid, but they are human.
Like all of us, they have tended to rely on simple heuristics, traditions, and habits, which in turn created the conventional wisdom that governed baseball for over a century. It takes time, effort, and courage for an organization to move from relying on faulty intuition to carefully assessing data and using appropriate statistical techniques. Lewis (2003) argues that the mistakes documented in Major League Baseball are probably more severe in other industries. After all, the sport of baseball is full of excellent, reliable data. Thaler and Sunstein (2003) compare the tendency of baseball executives to overlook a wealth of statistics to the tendency of personnel managers to base hiring decisions on their “gut” reactions to job interviews rather than on the hard data available on applicants. Executives tend to trust their intuitive reactions to interviews, despite extensive research showing that interviews provide little predictability about future performance. Thaler and Sunstein (2003) argue for personnel selection based on real performance predictors (grades, test scores, past company performance, etc.) rather than on intuition gathered from interviews.