The Resulting Fallacy

by: Richard A. Anderson

When Tiger Woods won the 2019 Masters earlier this month, it capped off one of the greatest comebacks in golf history, if not one of the best comebacks in the history of all sports. Woods’s last Masters tournament victory came in 2005 and his last major tournament win was back in 2008. In this 11-year span between major wins, Woods faced a very public divorce, was arrested for driving under the influence, and battled a number of injuries. With his latest Masters win, Woods has 15 major tournament wins and is now three behind Jack Nicklaus for most of all time.

 Love him or hate him, everyone loves a good comeback story. While the world has been swept up in this one, another story caught my eye.

 James Adducci, a 39-year old Wisconsin man, won more than $1.2 million at a sportsbook in Las Vegas by betting on Woods winning the Masters. Adducci, who claims to have never made a bet prior to this, wagered $85,000 with 14-1 odds.

 This is another story for the ages. An ordinary Joe wins a life-changing amount of money on his first ever bet. Sounds like a great bet.

 But as this story gained media attention, greater details began to emerge. The part I will focus on is the fact that Adducci has $25,000 in debt in the form of a mortgage, student loan, and car loans.

 So, while the results may have you thinking Adducci made a wise decision, what if he didn’t win? Couldn’t that $85,000 been better spent paying off his debt?

 This is a classic case of what former World Series of Poker champion turned best-selling author of the book “Thinking in Bets: Making Smarter Decisions When You Don’t Have All the Facts” Annie Duke would call resulting. Resulting is the idea that we commonly equate the quality of a decision with the quality of its outcome. This “results-oriented” approach can lead to poor decision-making down the road because we tend to repeat the same process that led to the good outcome, even if the outcome was based purely on luck rather than skill.

 When it comes to making bets like the one Adducci made, it’s clear luck was the driving force behind the outcome. But when it comes to investment decision-making, the line between luck and skill can be blurred.

 That’s why we follow an investment decision-making process that is based on economic rationale, backed by academic research, and can be repeated. And, maybe more importantly, we don’t review those decisions based solely on the outcome, but on the quality of information that drove the decision.