Understand why a bronze medal is better than a silver, and you might save yourself a lot of money someday. Let me explain.
Millions of Americans who normally don’t care much about hockey will probably tune in on Friday to watch an epic semifinal game between the U.S. and Canadian men’s teams. Many will probably need a little help understanding the rules, which will be lovingly and patiently explained by announcing legend Doc Emrick. They will almost certainly be confused by one very important rule that’s different in Olympic competition: The loser of Friday’s elimination game will play another game.
Huh?
At the Olympics, third place matters. Winning a Bronze medal matters. In fact, it’s almost certainly more satisfying than coming in second and winning the silver medal. Huh?
In the NCAA Basketball’s Final Four, the losers of the semifinal games don’t hang around and play for pride on Sunday (they used to). In virtually every other sports context, the distinction between third and fourth place is meaningless. But at the Olympics, it means an awful lot. My pal Mary Pilon at the New York Times is engaged in a cool project in Sochi, interviewing fourth-place finishers and explaining the grief they feel.
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But an even stranger quirk about the Olympics is understanding the human nature that leads athletes to feel better about themselves if they finish third than if they finish second.
In hockey, there’s a perfectly logical explanation. One of the cruel lessons of sport is this: “Everybody’s season ends with a loss, but one team.” Not true in this hockey tournament. After two teams suffer a heartbreaking loss on Friday, they will regroup, and play a consolation game on Saturday. One will get to end their tournament as a winner, on a high note, on the podium getting bronze. The silver medalists, however, will end the tournament with a loss on Sunday. It’s easy to understand why winning your last game feels better.
But that’s not the reason why bronze is better than silver. It has much more to do with “framing.” And this is the part that could save you money, and grief.
In short, regret is among the most powerful forces on earth, and the Olympics are nothing if not an incubator for regret. And silver medalists often get the worst of it. They are left to a lifetime of, “What might have been,” having ended their Olympic dream falling short of a gold medal by a few hundredths of a second, an inch of snow, or the width of a hockey puck. That tiny difference probably cost them a few million dollars, too.
On the other side of the regret spectrum, bronze medalists feel lucky that they just made it onto the medal podium, often looking with relief at the poor fourth-place finisher who goes home empty-handed.
It’s all how you look at things. Or, as behavioral economists would say, how you anchor your beliefs, or how you create your “counterfactual alternative.”
The seminal academic work in this area is a paper published back in 1995 by Psychologists Victoria Medvec and Thomas Gilovich of Cornell University, and Scott Madey of the University of Toledo. They had subjects study video of medal winners from the 1992 Olympic Games and found repeatedly that bronze winners were happier than silver winners. The paper cites the rather tragic observation of William James back at the beginning of the 19th Century; it sounds like James was writing about sports talk radio today, however:
“So we have the paradox of a man shamed to death because he is only the second pugilist or the second oarsman in the world. That he is able to beat the whole population of the globe minus one is nothing; he has ‘pitted’ himself to beat that one; and as long as he doesn’t do that nothing else counts.”
The authors offer a little modern-day translation, telling readers that objective achievements matter less than how those achievements are subjectively construed. “Being one of the best in the world can matter little if it is coded not as triumph over many, but as a loss to one,” they write.
This effect shows up all over the place. You’ll be happy with a 5 percent raise (probably ecstatic!) until you find out that a co-worker received an 8 percent raise. Worse still: if your investments yield a 5 percent return, but you learn of a fund that would have earned you 10 percent, you’ll pull your hair out. And think about how much worse it feels to miss a train or flight by 1 minute than by 30 minutes.
So how can this knowledge save you money? As with so many behavioral notions, simple awareness is its own reward. Understanding that you can choose gratitude over regret is a powerful tool. The silver medalist could imagine being fourth instead, for example. That might be called a shift in anchor, or the initial point of comparison. A counterfactual alternative.
More imp0rtant, understanding the force that regret plays in various consumer situations will help you make better choices. Many retail stores create artificial scarcity to encourage regret-avoidance behavior. Think: “I have to buy this dress, it may not be here when I come back,” or “This could be the last time the sale price is this low,” or “the price for this car is only good for today!” These thoughts are occasionally realistic, but more often then not, they are irrational salespeak. Prices almost always go down over time. I promise you, the car will still be on sale tomorrow.
Regret avoidance plays a big role in investing, too. Think: “You’d better buy this stock now, before it blows up. Remember the last time you hesitated.” Nobody wants a silver medal in retirement! But yanking on your regret strings is the oldest trick in the book for money managers. Don’t fall for it. Your goal shouldn’t be to come in first place. It should be to keep a slow and steady hand on your retirement prospects.
Be happy with a bronze in retirement. And at the store. And the car dealership. Be careful when you pick your points of comparison.
And remember, no one is perfect. I will be happy with nothing less than a gold medal for Team USA hockey. USA! USA! USA!
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