The financial turmoil that hit the global stock markets has scared investors away from stocks. Panicked about the fate of their savings, many investors liquidated their portfolios, thus causing a further decline in the market. Many financial planners and advisors are now recommending decreasing investors' exposure to equities.

Is this the right move? Should investors sell stocks when the market is going down?

A new article by a group of Israeli researchers sheds new light on this question from an unexpected direction—soccer games [Bar-Eli, Michael, Azar, Ofer H., Ritov, Ilana, Keidar-Levin, Yael and Schein, Galit (2005): "Action bias among elite soccer goalkeepers: The case of penalty kicks," forthcoming in: Journal of Economic Psychology].

The researchers examined a very unique situation in soccer games—penalty kicks. From a behavioral point of view, penalty kicks have several unique characteristics:

• ln most cases, the penalty kick ends with a goal being scored, thus having a significant effect on the result of the game.
• An experienced goalkeeper has faced many penalty kicks and thus is expected to know how to react to them.
• From the moment of the kick, it takes 0.2-0.3 seconds until the ball reaches the goal. Thus, the goalkeeper cannot know in advance what will be the direction of the kick and must choose the direction of his jump based on his past experience.

As a result of these characteristics, a penalty kick is a type of a "natural experiment" in which it is possible to examine the choices made by the goalkeepers under uncertainty. Since soccer players' compensation is dependent on the performance of their team, the result of the goalkeeper's choice will not only affect the result of the particular game, but also the long-term prospects for himself and for his team.

The researchers examined 286 documented penalty kicks from games of top soccer teams. For each one of the penalty kicks, a group of three qualified referees was asked to determine: (1) the direction of the kick; (2) the direction of goalkeeper's jump.

The results are presented in Table 1.

Table 1: Kick Direction And Goalkeeper's Jump Direction

The left column shows that the directions of the kicks were almost uniformly distributed. About 1/3 of the kicks were aimed to each one of the directions (left, right or center of the goal).

On the other hand, the decisions of the goalkeepers (shown in the right column) are biased toward jumping to either the left or the right side of the goal. Only in just over 6% of the penalty kicks did the goalkeeper choose to stay in the center of the goal.

Were the decisions of the goalkeepers rational? To answer this question, the researchers examined the success rate of the goalkeepers to stop the penalty kicks. The results are presented in Table 2.

Table 2: Success Rate Of Goalkeepers Stopping Penalty Kicks

Altogether, goalkeepers succeeded in stopping 42 penalty kicks—14.7% of all the kicks that were examined. The overall success rate of stopping penalty kicks is very low and most kicks result in a goal being scored. The left column shows that there is no connection between the success rate in stopping the kick and the direction of the kick. The success rate is very similar regardless of the direction of the kick.

On the other hand, an analysis of the 42 successes (shown in the right column) shows that the success rate of staying in the center (e.g., doing nothing) is more than double than the success rate of jumping to either direction.

Thus it seems that the decision made by the goalkeepers in 94% of the cases—to jump either to the right or the left—was not rational, since it decreased their chances of stopping the penalty kick.

Why does it happen? The researchers provide the following explanation:

The researchers call this behavioral phenomenon an "action bias."

What can we learn from this research on the behavior of investors during a bear market?

When the market goes down, investors start to see losses on paper that cause them a significant mental pressure. The future direction of the market is uncertain and investors have to make decisions that will have a significant impact on their well-being in the future.

Is the massive sell-off of equities during a bear market merely a result of investors' action bias? An emotional reaction to a difficult situation that makes them "do something," while rational analysis likely suggests doing nothing?

It seems to me that the answer to this question was given by Benjamin Graham in his book "The Intelligent Investor":

Elli Malki is an economic consultant and the editor of http://www.inbest.co.il/, an Israeli Web site that provides a decision support service for savers and investors. He can be reached at This e-mail address is being protected from spambots. You need JavaScript enabled to view it .