Is Your Executive Team On Tilt?

Avoid going “on tilt,” and it will be ok.


It was a card room in downtown Stockholm, Sweden.

I did a bad thing–playing poker with only a finite amount of time available. I had a little time on my hands and wanted to play some hands, so I was “loose,” as they call it, firing out bets at a healthy clip just for a little entertainment. It’s a good way to lose money, but it can also be fun. Except then I suffered a bad beat–I think it was betting hard into a full house with a modest pair in my hand in a mid-level limit hold’em game.

I stayed with it and was crushed by a guy with a higher pair, and then I did something that is all too common. I took the aggravation of that hand and bet hard into the next hand with it; I had nothing in my hole cards, but I raised a couple times, and I was soundly blown out by the Swede sitting to my left. And under his breath, this guy who had spoken not a word of English for an hour or more said:


And despite wanting to jump up and take a swing at the guy, I took a second and realized he was right. I was “on tilt,” which is to say I was making stupid bets after losing a bad hand. Emotion got the best of me.

But you know what? The term applies in business as well: Managers and executives frequently go on tilt; they suffer a minor loss and then seek more risk to offset it.

We are not good at maintaining an even keel during times of rapid changes in risk; if we suffer a loss, we have a pernicious tendency to double down the next time around to make up the loss, and this leads to much stupid.

Case in point: a management team misses out on a highly strategic M&A transaction by bidding too low. They make a perfectly rational bid, but they lose. So the next time a deal comes along, the same management team goes on tilt, shading their bid not just to their economic disadvantage but often to the point of irrationality. They may win, but they suffer the winners’ curse: they pay a value that no rational actor, even one with a big strategic premium, would pay.

Another manager, in the midst of negotiating a deal, ignores rational advice that the deal is off the rails; he has to get a deal done, so he caves in to his counterpart’s demands after the counterpart walks away. He gets “played” in the negotiation because he perceives the walk-away not as a tactic but as a loss.

Another manager, on losing a highly talented potential new hire to a different offer, spends millions on upper-tier consulting support on the topic the new hire would have been expert on.

All of these are examples of being on tilt. The managers above have all made irrationality out of rationality.

How do you avoid it?

The first and best way is to avoid artificial constraints. In an uncertain world, constraints that have no bearing on value are dangerous. My artificial time limit at poker, the need to “make” quarterly or annual metrics, or the need to please management are all technically reasonable, but they don’t relate to value: You may get a deal done within the constraints, but chances are low that it will be a good deal.

Second is to seek advice.

Third is to understand your culture and the culture you are dealing with. How risk balanced are you? Rookies go on tilt far more often than pros, and so do insecure executives vs. seasoned ones.

Finally, know when irrationality is a possibility–and know what it costs.  You, like me in my poker game above, may be able to absorb some losses due to taking a flyer here and there, but you also might not.

All this is to say that you are likely to encounter circumstances in which you, your manager, or the executive team whose board you sit on is on tilt. They may be irrational to the extreme due to losses or perceived losses they’ve suffered, and this is especially true when it comes to good governance.  Management teams who have not made their numbers or moved the stock price in a while will have a tendency to up their risky behavior.

So watch out for examples of this type of behavior. Avoid going on tilt, and it will be ok.


Piketty, WSJ, and the Grain of Salt

Author of Capital in the 21st Century writes a brief clarification. WSJ publishes a disingenuous claim that he’s backtracking.  Lesson emerges.

One of the sensations in the economic world last year (if economists can, in fact, be sensational) surrounded the book Capital in the 21st Century by Thomas Piketty.

If you haven’t read the book, keep in mind that I do recommend it, while I realize it’s not for everyone. Piketty explores historical government data to reach a few very basic conclusions about the accumulation of capital in a market economy.  His main conclusion is that the rate of return on capital typically outpaces the rate of growth of any given economy (which he summarizes with the formula r>g) thus creating a long term wind of accumulation that creates unsettling wealth disparities.  In the book, he also is very clear that the long term wind can easily be overcome by shorter term shocks; and, he refers to the world wars and their effects on old line wealth in Europe as an example.

Piketty’s book implies that, instead of relying on global conflict and political upheaval, it might be better to have a policy answer to leveling wealth disparity.  It’s not a bad idea.  It might not ever get out of the economist’s classroom, but still…

It’s an interesting read; and, Piketty’s proposal of a tax on wealth is actually quite compelling in theory.  It does, however, have a sort of “belling the cat” feel to it when one looks at the world as it is.

However, this article isn’t about reading, it’s about being a discerning listener even when you don’t read.

The case…

This week, I came across an opinion piece in the Wall Street Journal by Robert Rosenkranz.

Here is your LINK to Rosenkranz’s piece.  I encourage you to read it…with a grain of salt (I’ll explain).

In it, Rosenkranz states that Piketty, who drafted and released a paper in December essentially restating his conclusions but ensuring that popular discourse didn’t caricature them improperly, is “backtracking.”

Here is your LINK to that paper (beware the link opens a PDF of an academic paper…Don’t open it if such things burn your eyes).  It’s an interesting read and actually a fine distillation of many of the conclusions of the book.

The issue…

I do not know Mr. Rosenkranz or his profile; but something struck me…To anyone who reads this stuff and has a sense of the backstory, Rosenkranz’s article is fantastically disingenuous.

Mr. Rosenkranz, like so many others with a microphone these days, is depending on the probability that very few of his readers have actually read Piketty’s book.  So, he takes a paper where Piketty restates the fundamental conclusions of Capital and comes up with this (my emphasis added):

“Now in an extraordinary about-face, Mr. Piketty has backtracked, undermining the policy prescriptions many have based on his conclusions. In “About Capital in the 21st Century,” slated for May publication in the American Economic Review but already available online, Mr. Piketty writes that far too much has been read into his thesis.”

He also takes a statement in Piketty’s “new” paper and positions it as a “new” conclusion.  To wit:

“Instead, Mr. Piketty argues in his new paper that political shocks, institutional changes and economic development played a major role in inequality in the past and will likely do so in the future.”

Nevermind that Piketty is simply restating arguments of his book.  Rosenkranz, who doesn’t even link to Piketty’s “new” paper, seeks to discredit the economist by claiming he has “backtracked” and “consigns his famous formula to irrelevance” and that Piketty is “walking back” his views.

Piketty is doing nothing of the sort.  His paper is simply a reminder that the book had a lot of angles and to take only one angle and politicize it would be malpractice.  Unfortunately, Mr. Rosenkranz takes that exact tack.

So what?

Sleight of hand such as that employed Mr. Rosenkranz brings to the forefront a major issue in the popular press today:  The dependence of writers and speakers on the ignorance of their audience.

One need only look at the comments on the article to see that (1) very few people have actually read Piketty and (2) all Rosenkranz really did was engage in an extended ad hominem.

That, my friends, is demagoguery at its finest; and if it’s in the Wall Street Journal, imagine what others are doing.

The lesson on this is not “be a fan of Thomas Piketty” or “Piketty is right.”

I, personally, believe that massive intergenerational wealth is something to beware of. To engage in a little demagoguery of my own:  Any red-blooded American ought to have the same wariness.  

The lesson is that intermediary authors like Rosenkranz can and do distort and attack in order to provoke.  They do so even when the provocation is actually detrimental to healthy discourse.

These distortions happen on all sides of any argument, which, I suspect, is why Piketty felt the need to publish a few pages of “clarification.”