One of the most promising midfielders in contemporary world football Paul Pogba was recently signed by English power house Manchester United from Juventus for a world record fee of GBP 94m. Considering Pogba’s age, ( still 22 years – and he has been playing top level football for last four years) and achievements in Italy’s Serie A it would not have been difficult to ignore his underwhelming performance for France in the recently held UEFA European Cup. Not surprisingly two other top clubs – Real Madrid and Barcelona too were said to be in pursuit. Except for some raised eye brows not many pointers have come up regarding the transfer price of this fine young player.
However even amid the jubilations in Manchester there are some facts that should raise a red flag – outgo on Pogba is almost 25% of ManU’s annual revenues, Pogba is an amazing player but he is still a work- in- progress even if he is to become the next Zidane or Scholes, despite his high work rate he can’t lead the midfield that one would expect from a player who costs 93 m GBP. Most importantly he is not in the league of Messi or Ronaldo (or even, Neymar). Given his style and position preference he will also never be a Xavi, Pirlo or Iniesta. Since he won’t score too many goals – not being a forward- he won’t even get the occasionally exalted status provided to Bale.
Thus, the biggest problem in this transaction is that ManU system – that has been of late starved of the laurels that it was so used to in the Ferguson era – will have little patience with such an expensive player if their trophy drought continues for another year. Already, the ManU hierarchy will be cognizant of the dichotomy between their fans’ – big exponents of open and attacking football- expectations, and the dour style of their new manager Jose Mourinho. Eight ten-twelve weeks of sub- par performance in the English Premier League – and knives will be out at ManU.
It’s not just Paul Pogba
What would have gone on in the minds of ManU decision makers when they agreed to pay such a hefty fee? Indeed similar situations often occur in stock markets too. How does one justify the 4x appreciation in BHEL stock in 2006 and 2007 (followed by a decline of almost 70% in the ensuing four years)?
These are (although to be fair, Pogba’s case is yet to be settled depending on his performance in the coming years) cases of economic misbehavior – deviation from a rational approach.
Decision making with a rational approach
A stock that keeps going up like crazy, or a very high bid in an auction scenario are often explained by behavioral scientists along the following lines. These also happen to be the emotional pitfalls that we need to be aware of, and avert, to prevent bad decisions.
- Overconfidence in our ability – Generally we tend to overestimate our ability to discriminate between potential of two players or stocks. Here it is important to challenge our inclination with a barrage of counter arguments.
- Tendency to make extreme forecasts – Decision makers very often are prone to this fallacy especially once they have made up their mind. Isn’t it common to come across statements like “this guy will be the next Messi” or ” this stock is a five bagger”? Just looking at history can provide a nice base level – how many players of Messi’s caliber have emerged in recent times, or how many five baggers have come up in last ten years?
- False consensus – If we like some stock we start thinking that the stock is being chased by others too. This prompts us to quickly make the purchase to prevent others from bypassing us in the queue. This is especially pertinent for private equity transactions. Here the key is to evade the urge to act early. Also, taking into account all the existing information and analyzing them properly can aid an independent stance that may not need the consensus’ seal of approval.
- Winner’s curse – When many bidders compete for the same object (or player, or stock) the winner of the auction is often the person who most overvalues the object. In many cases the object will be quite good but not as good as the person winning it thinks. Taking a deep breath and softening one’s ego is perhaps the only way to avoid wining in an aggressive auction.
Coming back to Pogba – one really hopes that he succeeds at one of the most demanding clubs in the world. With solid technical abilities, imposing physical presence and tremendous work ethics he is one of the next big hopes of global football especially for the post -Messi and Ronaldo era although the high hopes of Manchester United may not be easy to meet.