Facing a fourth-and-one near the end of the first half of Philadelphia's Super Bowl win over the New England Patriots, Eagles coach Doug Pederson had a decision to make: Leading 15-12, they could settle for a field goal and extend their lead to 18-12, or go for the touchdown -- and risk coming away with no points at all.
Not only did Pederson choose to go for it, he decided to run a trick play that resulted in quarterback Nick Foles catching a touchdown pass from receiver Trey Burton.
"We had just gone all the way down the field," Pederson said, "and I wasn't going to stop."
Why did Pederson make such a "risky" call? He -- and the Eagles -- didn't fall prey to a common mental trap: Loss avoidance.
The premise behind loss avoidance is simple: Most of us strongly prefer to avoid a loss than to acquire a gain. (In short, we're much more likely to want to avoid losing $500 than we are eager to make $500.)
How much more do we want to avoid a loss than acquire a gain? Research by Daniel Kahneman, author of Thinking, Fast and Slow, shows that losses are twice as psychologically powerful as gains. (Which may mean that to most of us a bird in the hand really is worth two in the bush.)
Our natural tendency towards avoiding loss is understandable. A loss means giving up something you actually have, while not winning a gain means giving up something theoretical rather than actual.
If I have a chance to make $500 but don't, I may be disappointed... but if I already have $500 and then lose it, I'm really disappointed.
The problem with loss avoidance is that it typically defaults a decision to the status quo. It's easy to decide not to invest $10,000 in your business because you really don't want to lose it... but investing that $10,000 could allow you to create a new product or service that will generate significant revenue.
The key is to properly value the potential loss. Often, what we may lose isn't as valuable as we might think.
Pederson decided to trade the potential loss of 3 points for the gain of 6 (and possibly 7 or 8.) He also decided to trade the "safety" of kicking the field goal for showing confidence in his offense.
Going for it on fourth down implicitly said, "I trust you guys." (One of the best ways to boost morale? Displaying trust.)
Before you think I'm just using one data point to prove a point, most NFL teams fall prey to loss avoidance. In research that will be published soon in The Journal of Personality and Social Psychology, researchers looked at every time in the past 10 years where teams needed to choose, in the final minutes of a game, between kicking an extra point to tie the game or going for a 2-point conversion for the win.
The teams overwhelmingly chose to avoid the risk of immediate defeat rather than the possibility of immediate victory: Of the 47 times teams faced this situation, they opted to kick the extra point 89 percent of the time.
And that didn't work out so well: Even though the average rate of a successful 2-point conversion is 50 percent, teams that kicked the extra point only won 40 percent of the time. Statistically they would have been better off going for two.
When you're making a risk-reward decision, the key is to properly value the potential loss. Even though giving something away that you already have is painful, oftentimes what you may lose isn't as painful -- or as valuable -- as you might think.
And don't forget: You can recover from nearly any loss... but will you someday recover from the regret you will feel from not having done everything possible to achieve your dreams?