Analogically, assessing the right risks of waiting to spend.
A fun and interesting 2018 study of a season’s worth of National Hockey League data by New York University math professor Aaron Brown and hedge-fund manager Clifford Asness found that hockey coaches whose teams are down by one goal should “pull the goalie” with six minutes and 10 seconds remaining in the game—about three times earlier than most actually do.
Malcolm Gladwell often cites the study when discussing “Pull the goalie!” as part of his “12 Rules for Life.” Pulling the goalie and replacing him with another player increases the losing team’s chances of scoring a goal and tying the game. It’s a dramatic move, but basically borne of desperation. It entails risk, of course, because it also increases the already-winning team’s chances of scoring a goal and widening its lead. Take the risk, Brown, Asness, and Gladwell advise, and much earlier.
Why the wait? And if and when we know why, what might be the non-hockey implications? Brown and Asness offer several for investing. There might be some for philanthropy, too.
A global survey of more than 200 families with net wealth of at least $100 million released earlier this month by Rockefeller Philanthropy Advisors and Campden Wealth finds that 32% of them are time-limiting their grantmaking, a growing number. The model of giving in perpetuity remains more popular, but “[t]ime-limited philanthropy is a growing trend that is here to stay,” according to the report.
“The most basic lesson is to make sure you are thinking about the right risk,” Brown and Asness write.
Pulling the goalie always increases the volatility of numbers of goals scored, and is a negative expectation in terms of the score. For those reasons it is often used as a metaphor for a high-risk, desperation move. However, the point of hockey is not to maximize the differential between the goals your team scores during the season and the goals it gives up (if it were, no one should ever pull a goalie). The point of hockey is to maximize the number of standing points—a team down by a goal with short time remaining gains a lot by scoring, and loses little if the other team scores—which argues for a different measure of risk and return. As we have shown, pulling the goalie actually reduces the risk of losing the game—it’s an insurance move—and this is the proper risk measure.
So, in grantmaking, think about the right risk of waiting to spend. It might be less than you think, as it is for NHL coaches by Brown’s and Asness’ assessment. Ask yourself what’s the point of your giving. If you’re waiting to give, at least know why. Have an informed reason.
Ugliness and elegance
The question of why NHL coaches don’t pull goalies earlier, Brown and Asness note, “relates to a well-documented phenomenon in sports”—other examples of which (for fun, perhaps each worthy of a separate post?) have included that
basketball coaches were very slow to have players shoot enough three point shots; football coaches don’t go for it on fourth down nearly enough, nor attempt enough two point conversions; and baseball managers were very slow to appreciate the value of walks, the cost of outs, and the utility of the excruciatingly annoying radical infield shift.
Brown and Asness consider two reasons for these failures to act. “First, coaches are not actually rewarded for winning. They are rewarded for being perceived as good coaches. Obviously, the two are closely related but not exactly the same thing,” they write. Essentially, “winning ugly is undervalued versus losing elegantly; and losing ugly can be career suicide. Once again, the way you measure risk matters in making the optimal decision.”
In philanthropy, as it’s put, “winning ugly versus losing elegantly” might be particularly undervalued. Maybe the more “establishment” the grantmaker and its perceived or desired peers, moreover, the more the elegance is valued over the ugliness, of a win or a loss. Ask yourself whether you care how you and your foundation look to your friends and, if so, how much. If you do care and it’s a lot, know the risks. Know why.
Relatedly, “[t]he second reason coaches shy away from actions with short-term risk is that sins of commission are far more obvious than sins of omission,” according to Brown and Asness. “The hockey coach who pulls his goalie down 0–2 with ten minutes to go and loses 0–5 will face harsh criticism from every quarter. A coach who quietly loses 1–2, pulling his goalie only in the final minute, can hold his head up ….”
So, commit the “sin” and risk losing ugly. Apparently including really ugly, Brown and Asness recommend. Don’t wait. If the analogy holds, in the grantmaking context, the necessarily clock-conscious “coach” should give more earlier. Call it “empty-net philanthropy.”
(For further fun, however: stress-testing the analogy with a look at the philanthropic implications of playing the “long game.”)