In an interesting research paper, Michael Bar-Eli, et al, analysed 286 penalty kicks in top soccer leagues and championships worldwide. In a penalty kick, the ball takes approximately 0.2 seconds to reach the goal, leaving no time for the goalkeeper to see clearly the direction the ball is kicked. He has to decide whether to jump to one of the sides or to stay in the centre at about the same time as the kicker chooses where to direct the ball. About 80% of penalty kicks resulted in a goal being scored, which emphasizes the importance a penalty kick has to determine the outcome of a game.
Interestingly, the data revealed that the optimal strategy for the goalkeeper is to stay in the centre of the goal. However, almost always he jumped left or right. In short, goalkeepers choose action (jumping to one of the sides) rather than inaction (staying in the centre). If the goalkeeper stays in the centre and a goal is scored, it looks as if he did not do anything to stop the ball. The goalkeeper clearly feels lesser regret, and risk to his career, if he jumps on either side, even though it may result in a goal being scored.
Just like the goalkeeper, professional trader too feels compelled to play every trade that is out there in the market. In most cases either the event is already priced in or it just does not play out in line with the popular belief. Despite data proving that frequent trading might be counterproductive, the norm is always to act. Action seems to always triumph inaction.
So the next time you feel compelled to place a trade in the market, remember sitting around and doing nothing may just be a better option.
In short, just follow Charlie Munger’s advice:
And now something humorous!
P.S: I have a puzzle on the probability of Goalkeeper’s best strategy to defend goal post…will post it soon!