Sunday, 17 September 2017 16:02

Economic Theory and Your Training, Pt. 2 - Lessons From Behavioural Finance

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In my previous article, I discussed some examples of economic models that can be used to optimise one’s martial arts training.

The connection seems obvious in a way; Many of the highest ranking martial arts experts I have trained with are also savvy, successful business people and entrepreneurs. After all, martial arts theory has been used by business people the world over for many centuries. Books such as Sun Tzu’s The Art of War and Musashi’s Book of Five Rings are considered timeless classics on warfare, but also as guides to corporate strategy and business management. Indeed many of the famous Samurai were not only warriors, but also statesmen who served in an advisory capacity beyond that of a hired sword or bodyguard. 

If martial arts theory can be applied to business, why can’t the opposite be true?

Here are a few additional theories and models from economics and finance that can be related to martial arts training:

1. Loss Aversion Theory – This theory asserts that people have skewed perceptions of loss and gain. They hold on to losing investments for too long because they hope that they will eventually increase in value, even in the face of overwhelming evidence to the contrary. They also sell winning assets too soon out of fear that the price will drop and their profits will fall. This is a great analogy to emotional attachment to technique and/or style, despite evidence to the contrary. This, in a way, explains the ‘Karate vs hapkido’ YouTube video watching, ‘I belong to this association and not that one’, ‘our style is better’, ‘that technique would never work’ keyboard warrior trash talk culture that plagues the martial arts world.
How so, you ask?

We hate losing. We hold on to losing positions for too long. It means we look at techniques and styles from the bottom up (i.e. technique dictates strategy), instead of from the top down (i.e. strategy dictates technique). We pick a technique we like and we try to use it everywhere, regardless of whether it’s suitable or not. Or we pick a style that we train in, and defend it against any and all criticism out of fear, regardless of whether that criticism is warranted. Fear that if we have to ‘sell our investment while it’s down’ (i.e. change to another technique or style, or even admit that something isn’t working or someone is better than us), we would have made a loss in terms of the time and energy we have invested. 

The successful martial artist, much like the successful investor, understands that assets – techniques and styles – have no value in themselves. They are tools to be used to achieve a goal, and that fear of loss holds you back from learning and growing. Very rarely would you hear an investor saying ‘I felt really bad about having to sell those shares, I really loved them’. The shares are nothing but a tool used to create financial gain. You don’t get emotional if someone tells you they prefer to use a spoon rather than a fork, right? So why get emotional if someone says they prefer to grapple instead of strike, or Karate to Judo? In much the same way, techniques are used to achieve a strategic objective. 
Detachment and objective analysis should be the tools that rule supreme, and losses analysed and accepted when appropriate. Don’t hang on to a losing position out of fear of losing even more!

2. Rational Expectations Theory – This theory asserts that investors will make decisions based on what they rationally believe will happen in the future. On the face of it, this sounds simple and – excuse the pun – rational. This can be related to the development of fighting styles. Most styles were developed from an authentic combative need, and the techniques were designed to deal with the problems that were relevant at the time. Jujutsu was developed to use joint-locks and throws against armour-wearing opponents, because striking was ineffective against armour. Karate was developed, at least partially, due to growing weapon restrictions in Okinawa that forced practitioners to focus on empty-hand defence. Krav Maga developed for military use and multiple attackers, and as such is aggressive and direct. Boxing was developed… well, because punching an attacker in the face is usually an effective way of doing damage. In other words, the Rational Expectations Theory tells us why certain styles were developed. They were developed based on what was rationally expected that practitioners would have to fight against.

But this also gives us a very good indication of how to focus our training. You should spend the bulk of your assets (time, energy, money, etc.) into training for what is, rationally, the most likely combative scenario for you. In other words, spend 90% of your time training for what is likely to happen 90% of the time, and the other 10% of your time training for the ‘what if's’, or the stuff that’s only likely to happen 10% of the time, whatever that is in your personal fighting context. So ask yourself – are you spending your resources in a rational way to optimise for what is likely to get you the best return on your investment?

3. Risk Management Life Cycle – This is not just a business concept, and applies to practically any field. It’s a rational and logical way of dealing with risk, and follows the following four steps:

  • Identify and assess risks: This means collecting data about potential risks and analysing it to predict how likely they are to happen and what are the potential consequences.
  • Identify and assess risk management techniques: based on your previous analysis, decide what are the best options available to deal with the potential risk its consequences
  • Implement risk management technique
  • Monitor and review results

    This process is then repeated and tweaked as necessary. This is practically identical to the feedback or OODA loop (Observe, Orient, Decide, Act). 
While this is a great tool to analyse business risks, to me this explains the mind of a fighter. Fighting is like conducting continuous risk analysis. Have a look:
Process Business Example Fighting Example
1. Identify and assess risks Analysing reasons for a potential drop in
attendanceto classes in your gym - e.g. new
competitor, winter weather, etc.
Analysing how and when your opponent
jabs, as well as how they follow up on 
the jab, e.g, they over commit but don't 
leave the jab extended, or the hand drops
after they throw the jab, etc.
2.  Identify and assess risk management
How can you mitigate low attendance?
Analyse the cost and benefits of each
option - e.g. offering winter specials,
increase advertising budget, change
marketing focus, meet new competitor
to discuss potential synergies, etc.
How do you deal with that pesky jab?
Analyse the risks and benefits of potential
options, e.g. slip and rip to the body, 
shoulder roll and counter with a right
cross, smother the punch and get on 
the inside, chin-pull and counter jab, etc.
3. Implement risk management techniques Make a decision! e.g. increase advertising 
budget and offer some winter specials to
draw more people in during the winter lull
Bait a committed jab and then slip and rip 
to the body
4. Monitor and review results What happened? e.g. attendance increased
by X and signups increased by Y. Was this
effective? What can you do better next time?
Landed the body shot but didn't manage 
to follow up with significant strikes. 
How can you make that body shot
really count, or open him up for more shots?

The main difference between business and fighting is the speed at which this process happens. When looking at person-to-person relations (such as negotiations during a sales process, etc.) this happens quickly. When looking at implementing change for large business, it can take hours, days, months or even years to reassess and implement change. And the same can be said for fighters who are not very good… But those who are good fighters and understand their toolbox well, run through this process in split seconds, much like a good negotiator. Think of it as playing chess at 100mph. Developing your ‘fight IQ’ takes constant practice and reassessment using this process. This, in my opinion, is one of the greatest things about BJJ. It is a wonderful system for developing strategy at a good pace!


The 3 models covered here relate less to the way assets are valued, and more to the thought and decision-making processes behind investment choices. 
These are invaluable tools to the martial artist! The mind is the most powerful weapon. What’s the use of having a powerful car if you can’t drive? In much the same way, what’s the use of having great attributes and techniques without being able to use them wisely? 

We all have to find our own way for improving our performance. For me, art can be expressed as ‘mindful repetition’. This means that analysis and critical thought is required for each repetition. Analysing our decision-making and performance with detachment is key to understanding and improving ourselves. We all do this differently. Some write in a table, a spreadsheet, or a notebook. Others talk to their instructors and peers (or themselves). Others just think about it quietly. There are a million ways to do this!
It doesn’t matter how you do it, as long as you do it, and keep doing it!

Stay safe, stay tuned. 



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