Going Big: What the Patriots’ Loss Can Teach Us About Risk Management

This past Sunday the Patriots suffered a painful loss to the Giants in what was easily one of the most exciting Super Bowls of late. Boston wept, New York rejoiced, but the most incredible part of the night occurred thousands of miles away in the gambling halls of Las Vegas where Jona Rechnitz placed a $1,000 bet that the Giants would draw first blood by way of a safety. The betting odds for the Giants scoring first through a safety were 50:1 at the MGM Grand, where Rechnitz pocketed $50,000 just minutes into the game.

For those not well versed in football, the chances of Rechnitz winning were enormously slim. The two teams were evenly-matched, safeties almost never occur in the Super Bowl (this was only the sixth), and Tom Brady is widely believed to be among the best, if not the best active quarterback.

Given the improbability of a safety leading to the first points on the board, and Rechnitz’s huge wager on such an unlikely outcome, there are only three ways to interpret his actions: 1). Rechnitz had enough money that losing $1,000 was meaningless, 2). Rechnitz knew something that no one else did, or 3). his bet was extremely reckless but paid off.

Assuming that the third choice is the most likely, and that no other bets were made, leads us to a new and more profound question. Namely, how do we interpret Rechnitz’s actions given the fact that he won? Should it make any difference? Two social scientists offer differing models for how to answer these questions.

In his tortuously written and self-aggrandizing polemic entitled The Black Swan: The Impact of the Highly Improbable, Nassim Nicholas Taleb examines events in light of their impact. Taleb divides world events into two realms, mediocristan and extremistan. In mediocristan, some events are likely and some are less likely, but they are all nonetheless predictable and none of their outcomes have a drastic impact on the rest. In contrast, events in extremistan are hard to predict, capable of being rationalized after the fact, and disproportionately affect the entire field. Think of the difference between one plane crash per 10,000 flights and 9/11’s impact on the airline industry. The former is factored in as part of the cost of doing business, while the latter, though explainable after the fact, led to a series of new safety measures.

Given this framework, Sunday’s safety belongs to mediocristan, it may have been unlikely, but it did not have a large impact on anything else. If this is the case, then Rechnitz’s bet may not have been off base. He may have made some sort of cost-benefit analysis and decided to bet on the end of the bell curve rather than the safe center in favor of a larger potential payoff.

However, Dan Ariely, professor of psychology and behavioral economics at Duke University offers another means of interpreting Rechnitz’s actions. In this video, Ariely provides a framework for assessing choices based on the information available at the time of decision-making rather than the outcomes of such decisions. In Ariely’s world, decisions should be judged based on their quality at the time they were made, not by their outcomes. Ariely proposes this view in the context of evaluating whether employees deserve promotions, but the basic idea is transferable to our situation. Given this means-based approach, the fact that Rechnitz bet on the end of the bell curve at a high cost with little justification renders his decision reckless, and the fact that he got lucky and won is of no consequence.

These two schools of thought, one which looks at the nature of outcomes and the other, which assesses the quality of a decision at the time it was made, are useful analytical tools for us as attorneys. After all, the law is particularly concerned with probability- even if it calls it something else.

For example, tort law examines causation through a number of different methods, and the way that one defines causation has a dramatic impact on whether someone may be found liable for negligence. Likewise, criminal law has the standard of ‘more likely than not,’ and the determination of liability therefore hinges on how one interprets the likelihood of a set of circumstances unfolding. Whether one chooses to focus on the point of decision or the nature of the outcome may therefore lead to radically different results.

At the end of the day, if Rechnitz seems to have made a fool’s bet and gotten lucky, it’s because he did. To those moist-eyed Patriots fans searching for meaning in the wake of catastrophe (and unwilling to admit that the Giants were the better team), perhaps this lesson will help you in your struggles. But for everyone else, the story has a happy ending. Rechnitz has decided to donate the money to charity. In addition to his own charity of choice, Rechnitz is seeking to donate $5,000 to a charity of Tom Brady’s choice and $5,000 to a charity of Giants’ defensive lineman Justin Tuck’s choice. Rechnitz is challenging the two players (who collectively made over $125,000 just by playing in the Super Bowl) to match his contributions. For them to do so would be a safe bet.