One problem in studying managerial behavior is that firms aren’t very open about their failures. Still, a scholar trying to show that managers make mistakes won’t have many volunteers to serve as examples. This can, therefore, leave the perception that most organizations run smoothly. This has always seemed improbable to me. I’ve worked in several fields. I’ve encountered numerous committed, hardworking people but few who appeared to have completely mastered what they were doing. How can we show error in decision-making? Scholars look for high-profile examples. For instance, what American Football can tell us about management.
Managers Are All Pretty Competent?
Richard Thaler describes the debate within economics.
Becker believed that in competitive labor markets, only people who are able to perform their jobs … land the key positions.
Thaler, 2015, page 277
Such a view is not credible to me. Still, it is hard to refute. This is because most failures are hidden. To look for evidence of potential failures academics investigate the quality of decision-making in high-profile industries. Ideally those with high stakes decisions. You want to say people care about the decisions.
Sport, in this case, American football, is one such high profile industry. (Plus you can watch sport and claim it is serious academic research. Why wouldn’t you?) Sport is a highly competitive market. What is more the value of contributors is relatively easy to assess. It happens in public. The owners are often successful business people. They are not idiots or especially inexperienced. Furthermore, it is very easy to fire people. This should reward good decision-making. If Becker’s view is correct American Football should be almost perfectly run.
What American Football Can Tell Us About Management
Thaler studied the American Football draft. He worked first with the American Football team from Washington. Perhaps unsurprisingly, he found that the team’s owner was not the most open-minded man. [2021 I believe the name has been changed].
Thaler persisted. He uncovered from the data that teams don’t trade even near optimally. There are any number of simple mistakes made. One “mistake” might be termed an agency problem. The agent (the coach) doesn’t work in the interests of the owner (the principal). Coaches focus on the short term. The conflict is that agents know that they’ll be fired for short-term failure. This will happen even if they build a great platform for future success. Thaler calls this a problem of a foolish principal. The agent is, therefore, being perfectly sensible in focusing excessively on the short term. It is the principal’s insistence on short-term success that causes problems. Given poor decisions in American Football why would anyone think ideal decision-makers dominate other markets?
Decision-Making Is Often Imperfect
Decision-making in organizations can be haphazard. Sometimes agents make mistakes. Sometimes they are greedy. Other times the principals set up the workplace in such a way as to encourage decision-making that hurts the organization. Who really thinks managers know what they are doing?
For more on behavioral economics see here, here, and here.
Read: Richard Thaler (2015) Misbehaving: The Making of Behavioral Economics, Norton
