One of the essential insights of Daniel Kahneman and Amos Tversky and behavioral economics more generally is that reference points matter. When we make decisions, we care about the outcome, but we also care how the outcome compares to our current situation.
Imagine two scenarios:
- Scenario 1: After not having a smartphone for the first 18 years of his life, Joe finally gets a iPhone 5S.
- Scenario 2: Julie has had a smart phone for the last 8 years, and recently upgraded to the iPhone 5S.
Even if the 5S has the same value to each individual, and even if it’s an “upgrade” for both, it is likely that the degree of improvement in Joe’s life (going from no smartphone to a 5S) will make Joe more excited about his iPhone than Julie is about hers. In other words, while measuring satisfaction with an outcome, two things matter: what I end up with (the outcome), and where I started (the reference point). Since Julie’s reference point is closer to where she ended up, the improvement isn’t as drastic, and her feelings on the upgrade are likely to be “Meh.”
This same reasoning can explain why small differences in the lives of the poor can have profound positive impacts, or why a wealthy individual who loses a 90% of their fortune can feel so devastated. Suppose your bank account has $10,000 in it. If I ask how happy that makes you, you’ll say, “That depends. How much was in it this morning when I woke up?” If it was empty, then I’m pretty pleased. If it had $1million, I’d be more than a little upset.
So, what does this have to do with the NFL? Recently, commissioner Roger Goddell floated the idea of getting rid of the extra point. A touchdown is worth 6 points, and kicking the nearly automatic extra point extends the value of a touchdown to 7 points. But, teams have the option of “going for two” in lieu of kicking. More risky for certain, a successful two-point conversion leaves a team with 8 points.
Why change? Goddell’s logic is: the kick is almost never missed (only 5 missed out of ~1200 attempts, according to Goddell), so why not just give the team 7 points for the touchdown, and change the “two-point conversion” to a kind of plus-minus one-point conversion? It would be worth one additional point if successful, but teams who failed would be deducted one point. Mathematically, the proposal is no different than the current system.
But the proposal would alter each scoring team’s reference point! Consider the two scenarios:
- Scenario 1: I earn 6 points. I have the opportunity to earn 1 additional point (kicking the extra point) or 2 additional points (two-point conversion).
- Scenario 2: I earn 7 points. I can go for two, and either earn 1 additional point (successful two-point conversion) or lose 1 point (failed two-point conversion).
As this article points out in greater detail, the change in reference point is likely to increase the sting of a failed two-point conversion. Even though both circumstances lead to the same value, there is a difference in how we feel about 6 + 0 (failed conversion in current system) versus 7 – 1 (failed conversion in Goddell proposal). We don’t like losing what we already have, since our reference point is greater (here, at 7 in the new proposal). If Goddell’s intention is to create a greater number of exciting plays in an NFL game, this proposal may actually discourage teams from going for two – because reference points matter.