Do Firms Maximize? Evidence from Professional Football
Conventional wisdom is often wrong.
Forces (psychological or otherwise) acting on people make us prefer to fail conventionally than succeed unconventionally.
Consider football and the choice of punting.
Conventional wisdom tells us to punt on fourth down. If a coach ‘goes for it' and misses he's an idiot. If he goes for it and ‘makes it' he's a brilliant coach. The risks are high for the coach and he'd rather fail conventionally than fail unconventionally (most of the time). Statistically, coaches should go for it more often than they do. The paper below by David Romer provides some evidence that coaches overwhelmingly make decisions that do not maximize points (keep in mind, this study has many limitations).
Abstract: This paper examines a single, narrow decision—the choice on fourth down in the National Football League between kicking and trying for a first down—as a case study of the standard view that competition in the goods, capital, and labor markets leads firms to make maximizing choices. Play-by-play data and dynamic programming are used to estimate the average payoffs to kicking and trying for a first down under different circumstances. Examination of actual decisions shows systematic, clear-cut, and overwhelmingly statistically significant departures from the decisions that would maximize teams’ chances of winning. Possible reasons for the departures are considered.