Even Sir Ben Ainslie can’t beat the ‘outside view’



Simon Adler
Fund Manager, Equity Value

It was only right Sir Ben Ainslie should believe his Great Britain crew could win the America’s Cup but a more objective ‘outside view’ of all the facts suggested he was facing an uphill task

So New Zealand are sailing into the business end of the oldest competition in all international sport next week after winning the right to challenge holders Oracle Team USA for the 2017 America’s Cup. Huge respect, however, must go to Sir Ben Ainslie and the rest of the Great Britain crew for getting as far as they did when much of the prevailing wisdom suggested they had little chance.

All-time sailing great Ainslie had begged to differ, of course, but this divergence between the beliefs of the Great Britain camp and a more objective assessment of the competition’s long history put us in mind, here on The Value Perspective, of Nobel laureate Daniel Kahneman’s idea of the ‘inside view’ versus the ‘outside view’ in the context of decision-making.

Inside view vs outside view

In his 2011 best-seller Thinking, Fast and Slow, Kahneman – a founding father of behavioural economics – discusses an academic project he undertook in the 1970s for the Israeli Ministry of Education. After a year of what he and his team felt was good progress, Kahneman suggested they all write down how long they each thought it would be before the project was completed.

The estimates all fell between a very promising 18 months and two and half years. It then occurred to Kahneman to ask one expert on the team how long comparable projects had taken to complete – and was dismayed to discover the only instances his colleague could think of that did not drag on for between seven and 10 years were the 40% or so that never managed to finish at all.

This came as a complete surprise to the whole team, writes Kahneman – including the expert, “whose prior estimate had been well within the optimistic consensus of the group”. “Until I prompted him,” he continues, “there was no connection in his mind between his knowledge of the history of other teams and his forecast of our future. We should have quit that day.”

They did not quit – “Facing a choice, we gave up rationality rather than the enterprise” – and the project was duly completed after eight years, which was four times as long as the average ‘inside view’. Kahneman argues the fact it was so squarely in line with the ‘outside view’ was surely a fluke but concludes: “If the reference class is properly chosen, the outside view will give an indication of where the ballpark is.

The outside view on Ainslie

Returning to Ainslie’s bid to help Great Britain win the America’s Cup for the very first time, the inside view suggested he had every chance. Having won four gold medals and one silver over five consecutive Olympics, he is the most successful Olympic sailor ever while, as a tactician in the 2013 America’s Cup, he helped the US team overhaul a 1-8 deficit to beat New Zealand 9-8 in one of sport’s all-time great comebacks.

Furthermore, for Great Britain’s 2017 tilt, he had raised some £90m of funding and his team were fresh from winning the America’s Cup World Series, which sees all the America’s Cup contenders racing in identical boats. The outside view, however, pointed out the uncomfortable facts that, in more than 20 attempts, no British crew has ever won the America’s Cup – and no crew has ever won at the first attempt.

Crews have done so second time out, however, and, we wish Ainslie and his team every success in emulating them as the America’s Cup becomes a biennial event in 2019. In the meantime, here on The Value Perspective, we will continue to incorporate the outside view into our own investment decision-making process – weighing up the margins, returns and other metrics of stocks versus their peers in a bid to protect ourselves from internal biases to which even one of the founding fathers of behavioural finance fell victim.


Simon Adler
Fund Manager, Equity Value


Behavioural finance
The Value Perspective
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