William L. Silber - The Power of Nothing to Lose: The Hail Mary Effect in Politics, War, and Business

For Max, Ava, Dana, Shiloh,

and those in the pipeline

I have been thinking about this book for the past thirty years while teaching more than three hundred M.B.A. students each year at New York Universitys Stern School of Business. My course focuses on how investors choose among risky assets such as stocks, bonds, and real estate, but I soon realized that the same principles apply to presidents, generals, and ordinary people making decisions under uncertainty. A powerful result of the analysis: downside protection encourages normally cautious people to take daring chances. Let me explain.

The course is quite technical, so I designed a fun contest to sustain students interest during the last few weeks of the semester, after the math has worn them down like a brutal running attack in a football game. I asked students to pick a stock or bond they think will earn the biggest profit during the last month of classes. They get 1 points added to their final grade if they choose the winner, while losers receive nothingexcept sympathy. How should they decide?

Some students agonize over the process, while the clever ones recognize quickly that this is like betting on who will win a home-run hitting contest: three-time All-Star Dave Kingman or Hall of Famer Willie Keeler. Kingman, who played during the 1970s and 1980s, batted a measly .236 and struck out about once every four times he came up to the plate. Keeler, his polar opposite, averaged a sizzling .341 over the course of nineteen seasons, from 1892 through 1910. He almost always made contact, striking out just once every seventy at-bats. But Dave dominated in home runs, slugging a four-bagger about once every fifteen trips to the plate, while Wee Willie needed 291 chances per homer. Keeler, who once summed up his hitting philosophy this wayI hit em where they aintwas a much better batter than King Kong Kingman. But nobody cares about strikeouts in a Home Run Derby, just homers. Kingman should swing for the fences on every pitch, as long as strikeouts are not penalized, making him the best bet to win the contest.

Now back to the stock-picking game. No one knows the future, but the best strategy for choosing the most profitable stock discards caution and picks the riskiest security on the listperhaps a Canadian gold mining company. The volatile mining company offers the biggest possible profit over the next month, the equivalent of a home run, and the largest potential loss. But all losses, no matter how bad, count the same. Points are not subtracted from the final grade for the worst return (although that is not a bad idea). The rules of the stock-picking game limit the downside, so students should choose the most volatile investment, which may not always win but gives the best odds of getting the 1-point prize.

The stories in this book show how that same idea encourages bold undertakings more broadly and how that behavior has altered history. Each chapter is self-contained, like a short story, and includes chronicles of American presidents, generals at war, notorious dictators, and ordinary people.

The brief chapter in chapter shows that President Donald Trump was warned about a pandemic but failed to act.

In gets personal, showing how a nothing-to-lose attitude, if managed properly, can help make a successful career.

What started as picking winners in a stock market contest and a Home Run Derby has turned into a surprisingly powerful weapon for understanding behavior under uncertainty in life. Most of the stories show that downside protection in politics, war, and business favors the deciders but hurts innocent bystanders, creating tension between private and public interests. This book takes aim at the collateral damage.

Forty-three-year-old Jennifer Sutcliffe screamed when she saw a thick diamondback rattlesnake coiled among the flowers in the backyard of her home near Lake Corpus Christi, Texas, on Sunday, May 27, 2018. Doctors explained later that he had gone into septic shock. All from a decapitated rattlesnake.

Christine Rutter, a veterinarian at Texas A&M University, understood why Jeremy needed four days in a medically induced coma and twenty-six doses of antivenom to survive. (The usual is two to four.) A severed snakehead can live at least an hour and delivers a more lethal bite than normal because the snake is in mortal danger. According to Rutter, its adrenaline is maximized... so whenever they bite, they give it all they have. She added, Its almost like a Hail Mary pass in football.

A recent study of mating rituals in Asian spiders confirms the same behavior. The two genital appendages of the male orb web spider of the species Nephilengysmalabarensis break off during sex and plug up the female to block others from copulating with her. The sterilized male partner guards the female after sex, which lasts about ten seconds, to ensure its paternity by preventing other males from loosening the plugs and slipping through. In a series of experimental trials in the laboratory, an international team of scientists showed that males without their reproductive organs, the so-called eunuch spiders, regularly defeated fully endowed rivals in staged battles that lasted about sixty minutes. The biologists concluded, A eunuch guarding a female will respond... with maximal force when faced with an intruder.... A sterile male has no reproductive future and has nothing to lose. The scientists filmed the experimental battles to confirm the aggressive behavior of eunuch spiders, so the curious can watch the uncensored videos for themselveswith the usual caution that some of the scenes may be too graphic for children.

Humans have little in common with spiders or rattlesnakes, but the survival instinct prevails among all species and often alters normal behavior. Aaron Rodgers, star quarterback of the Green Bay Packers football team, has won games with the Hail Mary pass, but that is not why he will make the Hall of Fame. He succeeds with disciplined decision-making, having learned early in his career not to throw interceptions. As he once explained: I knew that from eighth grade, when I started playing football, and on, the only way I was going to be able to stay on the field was if I made good decisions and didnt turn the ball over. Nevertheless, Aaron Rodgers invites the chance of being picked off by throwing his signature pass into the end zone when Green Bay trails by a few points in the waning seconds of a game. Like the rattlesnakes severed head or the neutered spider, he has little to lose. The high upside with limited downside justifies rolling the dice because the desperate heave might notch a victory, but the otherwise certain defeat makes an interception meaningless. Rodgerss wager has an asymmetric, or skewed, payoff: substantial reward without significant negative consequence, turning the normally disciplined leader into a gambler.

Similar payoffs often arise in widely diverse activities, including politics, war, and business, with far more impact than Green Bays Super Bowl prospects. History shows that the success of the American Revolution turned on such a venture. General George Washington prepared for combat like a chess grandmaster, designing tactics to anticipate his enemys plans. On January 4, 1776, he asked the Continental Congress to reinforce New York: I submit it with all due deference... whether it would not be consistent with prudence to have some of the Jersey Troops thrown into New York, to prevent... the landing of [enemy] Troops at that place or on Long Island near it.

He followed up on March 13, 1776, with another appeal to prudence: As New York is of such importance; prudence and policy require, that every precaution that can be devised, should be adopted to frustrate the designs which the Enemy may have of obtaining possession of it. Yet on Christmas night, December 25, 1776, the general discarded caution and crossed the icy Delaware River in a daring attack on the enemy in Trenton, New Jersey.