PAUL SOLMAN: Every October, the national pastime prepares for its annual climax: the World Series. And most Octobers, it seems, the New York Yankees, having spent the most money on players, crush the ball and all comers. It's basic economics: In the jargon, the guys with the most resources use them rationally to maximize their self-interest. In other words, win.
Preparing for the World Series ourselves, and influenced by a new idea in economics, we went to a late-season game between two playoff contenders, the Yankees and the White Sox in Chicago. And to the nearby University of Chicago, home of the so-called "Chicago School," whose numerous Nobel laureates in economics are famous for thinking of human beings as rational maximizers, pure and simple.
RICHARD THALER, Economist: Economics is based on two important assumptions about behavior: The first is that people are rational, the second is that they're selfish.
PAUL SOLMAN: But, as skeptics of economics have long pointed out, the assumptions are pretty simplistic. So Richard Thaler's been blazing a new trail in behavioral economics, which says people often do irrational, selfless or self-defeating things. And it just so happens that one of his favorite labs for showing this is baseball.
RICHARD THALER: How come they don't want my autograph?
PAUL SOLMAN: They do want your autograph, they just don't know they want your autograph.
At first glance, baseball looks like a place where everyone is trying to maximize their self- interest, sometimes desperately. But Thaler insists, and it's the point of this piece, that behavioral economics has a lot to teach baseball fans about why players, managers, and owners often behave in irrational, self-defeating ways, despite the fact that baseball is supposedly the game in which people oh-so- rationally, play the percentages.
RICHARD THALER: Economics would say that in any situation, teams will do whatever maximizes the chance of winning. That's the economic model of a baseball game.
PAUL SOLMAN: And what's wrong with it?
RICHARD THALER: The people who are making those decisions go with their gut rather than with the data. And they try to make the decision that they will be able to defend after the game rather than the one that was best during the game.
PAUL SOLMAN: Behavioral economists pay a lot of attention to baseball because, like their other favorite lab, financial markets, baseball features high stakes decision- making that's highly visible.
And right off the bat, Thaler spotted Willie Randolph, Number 30, a former player turned third base coach, central to one of Thaler's classroom lessons from a 1980 Yankees playoffs game, which we illustrate economically with free little league footage, instead of Major League Baseball's $1,000 a minute.
RICHARD THALER: Yankees are behind by one run in the eighth inning, Willie's on first base.
ANNOUNCER: Randolph way over on first base, the one-two pitch to Watson, line-drive base hit, could be trouble in the corner, Watson over to chase it down...
RICHARD THALER: The third base coach has a split second to decide whether or not to try and score. And he waves Willie home. Now, I stop the tape at that point. I take a vote, 90 percent of the class votes to send him.
PAUL SOLMAN: That's what the odds dictate in such a situation, especially with a Greyhound like Willie Randolph. Only two perfect throws and catches would nail him at the plate.
ANNOUNCER: Here comes the relay from first he is...
ANNOUNCER: He's out!
PAUL SOLMAN: Improbably, they did. Cut to owner George Steinbrenner.
RICHARD THALER: And he's furious, he's yelling at the general manager who's sitting next to him. And the Yankees went on to lose that game, lose the Series, and Steinbrenner fired the third base coach. And he was fired for what was clearly a good decision.
PAUL SOLMAN: This is a key principle of behavioral economics, that we're all subject to "hindsight bias": evaluating a decision by its outcome, says psychology Professor Jim Sherman, who collaborates with Thaler in studying irrationality in baseball.
JIM SHERMAN, Psychologist: The idea that if the outcome is good, the decision must have been the right decision. Well that's not true. Sometimes good outcomes are based on bad decisions and sometimes good decisions lead to bad outcomes.
PAUL SOLMAN: These and other all-too-human tendencies, say Sherman and Thaler, lead to a game replete with irrationality. Such as only using your star relief pitcher in the last inning, and only if your team is ahead.
JIM SHERMAN: The guy who ends the game is called "the closer." And the guy who pitches before him is called "the setup man." Now it's clear which you'd rather be-- you'd much rather be the closer than the setup man.
LITTLE LEAGUE COACH: You did a great job, all right? I'm very proud of you.
PAUL SOLMAN: Closers get more fame, more money. But statistically, getting outs in the last inning is no more important than in, say, the inning before.
RICHARD THALER: Every out is important. And it's no harder to get the last three outs than the previous three outs, and in fact, it can often be the other way.
PAUL SOLMAN: Then there's another strategy that has become the way to do things: The sacrifice bunt.
RICHARD THALER: The book says in a close game, the first guy gets on, the next guy should try and do a sacrifice bunt to get him over to second base. And the analysis of that shows that you actually score somewhat fewer runs with a man on second and one out, than a man on first and no outs.
PAUL SOLMAN: So even when it advances the runner, the aptly- named "sacrifice" results in a too-costly out. This, in short, is not rational maximizing behavior, any more than an intentional walk is. Even if issued to baseball's scariest hitter, Barry Bonds.
RICHARD THALER: That does prevent him from hitting a home run. But that also turns him into a hitter that's batting a thousand in baseball lingo, ah...
PAUL SOLMAN: Reporter: That is he gets a base every single time he gets up.
RICHARD THALER: Right. And even Barry Bonds isn't that good. But, you don't get fired for walking Barry Bonds, and you may get fired for pitching to Barry Bonds.
PAUL SOLMAN: Ideally, those who make the decisions in baseball should rationally maximize, by going with the data. But behavioral economics teaches that losses hurt more than gains feel good, especially before anything happens.
UMPIRE: Ball four.
PAUL SOLMAN: Thus in baseball, as in investing, the fear of regret often tips the balance.
JOE TORRE: Come here for a second. This guy has a Red Sox hat on!
PAUL SOLMAN: I know, I know.
We brought Jim Sherman together with Yankee manager Joe Torre. All his actual research shows that people can't tell how regretful they'll actually feel or how bad they're going to, how long, I guess, the regret will last. So...
JOE TORRE: I, yeah, I don't disagree with that. I don't disagree with that. I mean, you don't know. But sometimes, you're thinking that the fallout even within yourself is going to be more than it really is.
PAUL SOLMAN: And that's exactly right.
JIM SHERMAN: And that's exactly right. But you do realize sometimes that good decisions have bad outcomes.
JOE TORRE: Oh, no question! Oh, let me, let me give you one...
PAUL SOLMAN: As when Torre, admired by the professors for his decision making, had his star slugger pinch hit in a key situation.
JOE TORRE: Bases are loaded and one out. Bing! Hits into a double play. The inning's over. So I mean, that was the best decision I could have made. I went home, I said "if that happens again, I'm going to do it again."
PAUL SOLMAN: The same thing happened recently with relief pitcher Jeff Nelson.
JOE TORRE: I bring him in to pitch to a right-hander, he walks him on five pitches. No, I'm not going to regret that decision. And once you start making decisions on worrying about what other people think, then you'll wind up on the unemployment line.
PAUL SOLMAN: No wonder the Yankees have been in the playoffs every year since Joe Torre took the helm in 1996, and have won four World Series under him.
RICHARD THALER: He's been able to manage even with the boss upstairs ready to second guess him every time he makes a good decision with a bad outcome.
PAUL SOLMAN: And so in a sense Joe Torre embodies the lessons of behavioral economics.
RICHARD THALER: Absolutely. I give Joe Torre an "A."
PAUL SOLMAN: Torre not only has the advantages of regular economics, his team has more wealth than the other guys, but he's learned the lessons of behavioral economics. If Joe Torre can learn, though, why doesn't everyone?
RICHARD THALER: Well of course, some do. And so there's a minor revolution going on in baseball of teams starting to play smart. But, they've been playing baseball for over a hundred years, why did it take this long? That's really the question to ask.
PAUL SOLMAN: And the answer to that is?
RICHARD THALER: Human nature.
PAUL SOLMAN: Human nature. It's what drives the behavior in behavioral economics. And, it seems, in the game of baseball as well.