Just because an investment decision crashes does not make it wrong

From active investment to self-driving cars, in a complicated world full of risk and uncertainty, everything can benefit from a system that helps to maintain some consistency


Roberta Barr

Roberta Barr

Research Analyst, Equity Value

Earlier this year, you may recall, a 49-year-old woman was hit and killed by a self-driving car operated by Uber Technologies as she crossed a road in Temple, Arizona.

According to Science Daily, the vehicle could have come to a complete stop in three seconds but did not employ emergency braking until 1.3 seconds before impact, leading to a renewed debate on the default actions for AVs (autonomous vehicles) when they detect a “roadway hazard”.

A natural reaction to the story was that the car should have been programmed to swerve to avoid the pedestrian but, of course, it is not as simple as that.

After all, if a car swerves onto a crowded pavement or into oncoming traffic, there could be even greater loss of life. What then might be the most morally and ethically sound way for a self-driving car to behave in this situation?

This is the precisely the question tested by a team of researchers in a recent study that asked hundreds of participants to choose between a car staying in lane (and braking) or swerving, where each action could lead to a collision with another road user at varying degrees of uncertainty.

And the researchers’ key finding was that people generally preferred that the car remain in its lane and perform an emergency stop.

As Science Daily notes: “This supports the idea that people consider the stay option a reasonable default, as it conforms to general rules of driving and provides a better degree of controllability, even if it does not minimise expected loss. Employing this action as a simple default rule requires less processing of information and will often lead to better results.”

You can read the full text of the research paper, How should autonomous cars drive? A preference for defaults in moral judgments under risk and uncertainty, here but let’s pick out a few details of the experiments involved.

Experiment one

In one, participants were presented with a scenario in which a self-driving car had to perform one of two manoeuvres – stay in lane or swerve.

“Staying in the lane puts a pedestrian in the street in danger while swerving puts a bystander on the sidewalk at risk,” explains Science Daily. “The likelihood of colliding with the pedestrian and the bystander were varied, creating different scenarios with specified or unknown risks. The likelihood of colliding with the pedestrian in the street was either 20%, 50% or 80%."

The results showed a general preference for staying in lane with more than 85% of subjects opting to do so.

When the likelihood of hitting the pedestrian was 20% and hitting the bystander was 50%, no one opted to swerve.

All this is perhaps what you might expect and yet the researchers also found that, even when the likelihood for both collisions was 50%, staying in lane was seen as more acceptable than swerving.

Experiment two

A second experiment went on to examine how people morally evaluate self-driving car behaviour after a collision has occurred.

“From a policy perspective, AVs should act in ways that society deems acceptable even if collisions do occur,” Science Daily says. “The participants were asked how an AV should perform in a specific situation and to evaluate the moral acceptability of both staying and swerving.”

The results showed, if the car stayed in lane, the outcome – collision or no collision – did not affect people’s views on how an AV should behave.

If the car swerved, however, the outcome was “highly persuasive in retrospect”.

If no collision happened, about 40% preferred to swerve, but fewer than 20% felt that way when a collision did occur. Even when a collision occurred, then, staying in lane was deemed more acceptable.

What's this got to do with investing?

The inclination to take a different view of a course of action depending on the outcome is also prevalent in the world of investing.

Behavioural biases tend to mean that, if a stock has done very well for them, an investor will be more tempted to keep holding it – even if there is no longer an attractive investment case.

Similarly, if an investor has been burnt by a stock once, the likelihood of their buying a similar stock in future decreases.

A less emotional appraisal of an investment that has gone wrong, however, is that just because you lost money, it does not automatically follow you were wrong to buy it in the first place.

Much more important is to have had a system in place to keep your mind clear of emotion and to ensure that, when you bought in, it was because the expected upside compensated you for the risk you were taking on.

That is because, as we discussed in Eying returns, investors do not have to get every decision they make right in order to be successful – in fact, the percentage is a good deal closer to 50% than can often feel comfortable on a day-to-day basis.

As we have argued before, successful investment is about sticking to a tried-and-tested process that edges the odds in your favour and helps you to make disciplined decisions about when to buy and when to sell.

As we have written in Four edges, value is just such a process.


Roberta Barr

Roberta Barr

Research Analyst, Equity Value

I am an investment analyst for the Global Value Team, having joined Schroders in 2016 as part of the graduate programme. After spending a year as an investment analyst for the Quantitative Equity Products team, I realised my affinity for the deep value investment mindset and joined the Global Value Team in 2017. Prior to working for Schroders I studied mathematics at Oxford University.


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The views and opinions displayed are those of Nick Kirrage, Andrew Lyddon, Kevin Murphy, Andrew Williams, Andrew Evans, Simon Adler, Juan Torres Rodriguez, Liam Nunn, Vera German and Roberta Barr, members of the Schroder Global Value Equity Team (the Value Perspective Team), and other independent commentators where stated.

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