Whether your Final Four picks include Blue Chip mega-caps (Duke, Michigan and Kentucky), or low-cap growth stocks (High Point, Cal Baptist and Prairie View A&M) behavioral biases are on full display when tens of millions of Americans fill out their NCAA men’s basketball tournament brackets.

March Madness is not just a three-week basketball-palooza. It is a classic example of the cognitive biases that derail investors year after year.  Here are four of the most egregious ones:

1. Overconfidence Bias

Ask anyone why they picked a certain team to go deep in the tournament and you will get a confident, well-reasoned answer. They watched three games this season. They read a column about the point guard. Their cousin went to that school. The coach is hot right now. They did well last year.

This is overconfidence bias in its purest form — the tendency to overestimate the accuracy of our predictions based on thin or anecdotal evidence. Behavioral economists have documented this bias extensively. Behavioral psychologist, Daniel Kahneman, described how people consistently overestimate the precision of their forecasts, especially in complex systems with many interacting variables.

Basketball, like markets, is exactly that kind of system. A star player rolls his ankle in warmups. An underdog catches fire from three. A referee misses a call. The outcome is partly skill and partly chaos — and yet tens of millions of people fill out brackets with supreme conviction. Yet no one has ever predicted all 67 games correctly in the same year. In fact, out of 36 million brackets completed on the major online sites in the 2026, NOT ONE bracket remained perfect by  the 44^th game of the 67 game tournament. And there are still four rounds to go.

Investors do the same thing. We read a few earnings reports, catch a segment on financial television, and proceed to make high conviction bets on individual stocks. We forget that we are competing against professionals who do this 12 hours a day with resources and computing power we cannot imagine. The bracket reminds us: confidence and competence are not the same thing.

For many years, Warren Buffett offered $1 billion to anyone who could pick a perfect NCAA bracket and never once paid up. Now Kalshi, the prediction market site is made the same $1 billion offer. They already know they won’t have to pay up in 2026.

2. Recency Bias: Why Last Year’s Champion Gets Too Much Love

In bracket psychology, recent events loom far larger than a full body of evidence would justify. The defending champion University of Florida Gators were a No.1 seed in this year’s tournament and a heavy favorite to make the Final Four. Instead, they got knocked out by No.9 seed, University of Iowa in only the second round. University of Nebraska started the season 20-0 and then dropped seven of their last 13 games heading into the post-season. They fell to a No.4 seed and millions of bracketeers overlooked them as a contender. Yet here are the Huskers in the Sweet 16 having just knocked off Vanderbilt, champions of the highly competitive Southeastern Conference.

Recency bias is equally destructive in investing. When markets are rising, investors pile in, assuming the good times will last indefinitely. When they correct, panic selling takes over. We let the last six months of data override twenty years of historical context.

The data on this is sobering. Dalbar’s annual Quantitative Analysis of Investor Behavior consistently shows that average investors dramatically underperform the indices they invest in — not because the funds are bad, but because investors buy high and sell low, chasing recent performance. They are filling out their financial brackets based on last week’s box scores.

3. Confirmation Bias: Rooting for Your Pick to Be Right

Once you have committed to a bracket pick, something strange happens. You start finding evidence that supports it everywhere. TV analyst Charles Barkley calls your team a “sleeper to watch” and it feels like vindication. But when pundit Seth Greenberg questions them, you instantly dismiss his take on your team, even if his argument is stronger. You are no longer evaluating information objectively — you are prosecuting a case for your predetermined conclusion.

Confirmation bias is one of the most dangerous land mines in investing. Once we own a stock, we unconsciously filter news through the lens of ownership. Good earnings confirm our genius. Bad news gets rationalized as temporary. We stop asking “should I own this?” and start asking “why should I continue to own this?” — a subtle but devastating shift.

Before you finalize a bracket pick, read the case for the other team. Before you double down on a position, write out a serious bear case. The goal is not pessimism — it is intellectual honesty.

4. Loss Aversion

Research suggests most people feel the pain of the loss roughly twice as intensely as the joy of a gain. Kahneman called this “loss aversion,” and he showed it is hardwired into our brains from birth.

In March Madness, loss aversion drives people to pick favorites relentlessly, even when the expected value of an upset pick is higher. We protect our bracket’s survival rather than optimizing for winning the pool. We anchor to our initial picks long after they should be reconsidered.

For investors, loss aversion leads to holding losing stocks far too long — hoping to “get back to breakeven” — and selling winners prematurely to lock in gains. Both behaviors sacrifice expected returns in service of emotional comfort. The result is a portfolio shaped more by feelings than by fundamentals.

How March Madness Can Make Us Better Investors

The most successful bracket players — and investors — share a few key traits.

1. They diversify their picks rather than over-concentrating on one narrative.

2. They respect base rates: historically, No. 1 seeds win the national championship more often than all other seeds combined. They manage their downside and stay in the game long enough for their process to pay off.

3. They also know when to trust the structure over the story. The tournament bracket is a process. A well-constructed investment policy statement is a process. Both exist to protect us from ourselves in high-emotion moments.

Before you submit your next bracket or make your next investment decision ask yourself: ”Am I making this pick because the data supports it, or because I watched them play two weeks ago and they outplayed their conference rivals with a better record? Am I buying this stock because I have a thesis, or because everyone on my feed is talking about it?”

Conclusion

March Madness lasts three weeks. The behavioral biases it exposes can last a lifetime. The court just makes it more obvious than a brokerage account does.

#Marchmadness, #NCAAbasketball, #behavioralbias, #investing

Last week’s post (March Madness, April Sadness Biases for Investors and Hoopsters Alike) generated more feedback than usual, so I thought we’d do a follow-up post. With the annual NCAA Men’s Basketball tournament (aka “March Madness”) behind us, have we learned anything new about what separates  the elite teams from all the other contending teams?

Yes, but there’s more to it than meets the eye.

As mentioned last time, the 2025 tourney was only the second time in history that all four top-seeded teams (Auburn, Florida, Duke and Houston) made it to the Final Four. That being said, we expect fewer “Cinderella” upsets in the future because it’s easier than ever for elite players to transfer to top contenders. And it’s easier than ever to compensate college athletes directly through Name Image & Likeness (NIL) deals.

But what if there’s something more going on? Could that explain why Florida and Houston advanced to the national championship game and why Duke and Auburn – the two highest ranked teams coming into the tournament – had to watch the finals on TV?

Could those same attributes explain why some professional service firms sail through busy season and year-end crunch time, and others implode and point fingers when the pressure is on?

Dan McMahon, CPA, Founder and Managing Partner of Integrated Growth Advisors says, yes. He believes that team culture, whether in the office or the hardwood, has as much to do with it as raw talent, coaching and mentorship.

“Houston is a culture-first program,” noted McMahon. “Under head coach Kelvin Sampson, their identity is built on grit, relentless defense, and a next-play mentality. Their players embrace tough games and physical play—and they rarely get rattled,” McMahon noted. Against Duke, he said that Houston’s consistency and mental toughness showed through against the exceptionally talented, but relatively inexperienced Blue Devils.

“While Duke has a legacy culture from the Coach K era, sustaining that under new leadership takes time,” said McMahon. “Duke usually brings in the most talented freshmen in the country, but they’re still evolving [under third-year head coach Jon Scheyer] in terms of forging a new identity. Culture takes root over years—not just seasons,” asserted McMahon.

Florida, the eventual champion, “played like a team on a mission,” related McMahon. “Their chemistry, unselfishness, and execution were clear against Auburn in the semi-finals.” He said Auburn head coach, Bruce Pearl, had done an “incredible job instilling intensity and passion,” but Florida seemed more poised and more connected in high-pressure moments. “Auburn had energy—but Florida had balance. In March, the more emotionally steady, values-aligned team seems to win the big games,” explained McMahon.

Here’s the thing: culture doesn’t guarantee victory—but it raises your floor, and in March and April, that matters. “Strong cultures create clarity under pressure,” said McMahon. “And that’s often the difference between closing out big games or watching them slip away.” Every March he said, we witness elite college basketball teams rise—or fall—based on how well they execute under pressure. “The difference rarely comes down to raw talent. It’s about culture, clarity, and leadership,” he said.

According to McMahon, players at Houston and Florida don’t have to guess what to do in the final seconds of a game—they know instinctively what to do, having run through each scenario countless times in practice. The players inbound the ball with confidence, not confusion. They know exactly where to be on the court at the start of the play and where to move as the play develop. They trust their roles. They operate within a system that’s been built and reinforced day after day.

Now shift the lens to the world of accounting firms and other professional services firms.

Over the course of his career, McMahon says he’s found that the highest-performing firms share many of the same traits as the top tier college sports programs:

1. Defined roles and responsibilities.
2. Strong tone at the top.
3. Clear mission, vision, and values understood by all.
4. Proven systems in place that replicate success.
5. Team members don’t need to be spoon-fed by coaches/superiors. They anticipate, adapt, and execute. 

As a result, McMahon said the highest-performing firms don’t fall apart during tax season or year-end planning season —they rise to the challenge. “They’ve put in the reps,” asserted McMahon. “They’ve invested in leadership development, cross-functional communication, and process accountability. Their team members know what’s expected of them—and why.”

By contrast, McMahon said lower-performing firms resemble teams without a playbook. “They have lots of individual talent, but no shared system. They have unclear roles. Leaders haven’t built trust or communicated expectations. Every crisis feels like the first time. The firm survives tax season, but just barely – and excuses and finger-pointing prevail rather than accountability.”

On whose team would you rather be?

Conclusion
How is your firm managing through crunch time? I’d love to hear from you.

#marchmadness, #firmculture, #governance, #accountability

Maybe because the rest of the world is in such turmoil, the basketball gods gave us an eerily predictable and uneventful NCAA Men’s Basketball Tournament. As we head into the final weekend of “March Madness,” the Final Four remaining teams (Auburn, Duke, Florida and Houston) are each heavily favored No.1 seeds for only the second time in the history of the tournament. It’s like having the four largest cap companies in the S&P 500 outperforming the other 496 names by a large margin all at the same time. It doesn’t happen often.

The annual single-elimination national tournament of college basketball’s 68 best teams is usually filled with wild upsets, heart-wrenching losses and game after game going down to the final seconds in which your favorite team either wins or goes home (season over). No best of seven. No consolation bracket. No do-overs. If you’re a bettor, you need a balanced portfolio of heavy favorites, mid-major standouts and unlikely upstarts to come out ahead. Like the stock market, you just never know which name or sector will get hot at just the right time.

March Madness is the ultimate reality show in which on any given night unheralded Fairleigh Dickinson can end top-ranked Purdue’s season in the first round (2023). University of Maryland Baltimore County (UMBC) can end top-ranked Virginia’s season in the first round (2018). St. Peter’s, a tiny commuter school from Jersey City, NJ can send mighty Kentucky packing in the first round (2022) and then end Purdue’s season in the third round, or Florida Gulf Coast can knock out mighty Georgetown in the first round (2013).

This year’s tournament started out predictably unpredictable in the first round as little- known McNeese State knocked out Clemson; No.12 Colorado State beat No. 5 Memphis; and No. 10 Arkansas beat No. 7 Kansas and then No. 2 St. John’s. But, then the upset gods fell asleep at the wheel and went on vacation early. By the time we got to the Elite Eight teams, we had four No.1 seeds, three No. 2 seeds and one No. 3. Great teams all, but pretty “chalky” as the betting community would say. And not very exciting.

What March Madness teaches us about investing

Despite a more predictable than usual tournament, none of the 34 million brackets filled out on the ESPN and CBS platforms remained perfect after the first two rounds of the six-round tournament.

I bring this up because our collective inability to pick March Madness brackets successfully, despite all the data and analysis available to us free of charge and in real time, highlights many of the behavioral biases that so often derail our investment decisions.

Rory Henry, CFP®, BFA, Director of Arrowroot Family Office and author of the new book Holistic Guide to Wealth Management, told me if you’re looking at your bracket and wondering why you got your hopes up that a “Cinderella” run would bring back the madness, it’s not your fault—”you likely fell victim to one (or many) of the psychological and emotional biases” such as those listed below:

1. Narrative Bias. “We crave stories,” said Henry. “The Cinderellas gave us drama, hope, and belief in the improbable. Without them, we’re left with stats and seedings—logical but less exciting. We’re wired to favor the emotionally compelling over the rational,” he lamented.
2. Recency Bias. Last year’s upsets? “We expect more of the same,” asserted Henry. “But just because it happened recently doesn’t mean it will repeat. Our memories are short, and our expectations are often misaligned with changing realities,” Henry added. Sound familiar investors?
3. Boredom Aversion is perhaps the most overlooked bias according to Henry. “When things play out as expected, we feel let down. We miss the chaos. We crave the underdog even as we fill out our brackets with safe picks. Predictability feels less human—and less fun.”

I might also add “Loss Aversion” in which the pain of a loss is felt at least twice as acutely as the joy of the gain. It doesn’t matter if you’re filling out brackets or balancing your portfolio. Losses hurt….bad.

For more behavioral bias that derail or investing and bracket-picking plans, see

What March Madness Teaches About Our Biases.

“March Madness has always been about the irrational exuberance of college basketball fans,” noted Henry. “This year, it’s teaching us a different lesson: that our love of drama, our reliance on the past, and our resistance to predictability—and yes, our delight in making irrational picks—are what made March Madness so fun in the first place. And maybe, just maybe, we’re learning that true madness isn’t in the upsets—but in how we process what happens when they don’t occur.”

From where I sit, this year’s lack of drama is likely to become the norm rather than the exception, thanks to the Transfer Portal and the new NIL deals that allow players to make money – in the seven figures for top players — from the commercial use of their name, image, and likeness.

“Talent,” said Henry, “is now clustering at big-name programs with deep pockets and brand visibility.” I agree with Henry’s assessment that if you need a skilled point guard, you no longer have to take a chance on 17-year-old high school recruits and wait several years for them to develop in your program. You just go to the transfer portal, search on experienced points guards, and reach out to a proven fourth- or fifth-year player who’s looking for a bigger paycheck at your school. They must no longer sit out a year in order to transfer and wonder if boosters will make good on their under-the-table promises. It’s all out in the open.

And that’s a shame. March Madness has long been the platform for the Weber States, Valparaisos, Gonzagas, Texas Westerns, Butlers, UMBC’s and St. Peters’ to gain national recognition and substantially boost donations and applications. It’s also a chance for the Yales and Princetons of the world to show they can hit the hardwood as hard as they hit the library. Auburn and Arizona learned that the hard way in recent years. Not so this year.

Conclusion

We need those scrapy startups to put the Mega Caps in their place from time to time. Otherwise, we’re just mailing it in and not innovating or getting better. What are you and your colleagues doing to stay hungry and innovative? I’d love to hear from you.

#marchmadness, #innovation, #behavioralfinance

Hard to believe, but the annual NCAA men’s Division I basketball tournament is upon us. The national championship of college basketball (aka “March Madness”) is the ultimate three-week long reality show. Where else can little known universities (aka small cap growth stocks) such as St. Peters, Loyola of Chicago, Murray State, Weber State and Florida Gulf Coast suddenly jump into the national limelight alongside powerhouses Kentucky, Kansas, Duke, Villanova, UCLA, and North Carolina (aka the mega cap blue bloods)?

Bracketology is not an exact science

As many of you know, filling out your NCAA tournament brackets can be great for office morale, despite the drop in productivity. It’s not like picking stocks in which there are over 10,000 companies to choose from. There are only 68 teams, playing a total of 67 games. Every team’s record, roster, statistics, and injury status are out in the open. Like the markets, the Vegas oddsmaker instantaneously digest and “price in” all new information that could materially impact the outcome of each game. It’s all publicly available and free of charge.

While an estimated 20 to 30 million people painstakingly fill out their tournament picks every year, there has never been a verified perfect bracket. The closest to perfection came in 2019, when a Columbus, Ohio, resident correctly chose the winners of the first 49 games of the tournament only to see his picks unravel in the third of six rounds. For years, Warren Buffett has offered his employees a $1 billion prize for picking a perfect bracket and he’s never come close to paying out.

So why are we so bad at it?

It turns out our bracket-picking prowess gets clouded by many of the behavioral biases that derail investors: Recency Bias, Confirmation Bias, Following the Herd, Familiarity Bias, the Halo Effect and more. Filling out your brackets is like constructing a diversified investment portfolio. You’re trying to find the right balance between the “safe picks” (the top seeded, blue-chip stocks) and the “upset picks” (the undervalue lower seeds, aka small cap growth stocks) that will earn you bonus points separate you from the other players in your pool.

And that’s where the human mind gets sidetracked by our behavioral biases. Let’s look at some of the most common ones:

Recency Bias. Investors believe that last year’s top performing stocks and funds will repeat their success in the current year. In reality, last year’s top performers are usually in the middle or bottom third of the pack the following year. Remember how well tech stocks did in 2022 or how poorly energy did? What a difference a year makes.

Same goes for March Madness. Last year’s Final Four teams were all blue chip programs that appear in the tournament almost every year. Defending champion, Kansas is back and looking strong. But North Carolina and Villanova didn’t even qualify for the tournament and Duke had to win nine of its final ten gams just to break into the top 20. And what about St. Peters, the tiny (micro-cap) commuter school from Jersey City, NJ that made a Cinderella run into the Elite Eight? The Peacocks didn’t even have a winning record this year and failed to qualify for the NCAA tournament.

Familiarity Bias. It’s amazing how many people pick their alma mater to do well regardless of the team’s record or who else is in its bracket. People also tend to over-pick teams that are in their geographic area because they hear about them all the time on the news, or because many family members are alums. The reciprocal of Familiarity Bias is Unfamiliarity Bias. That’s the tendency to ignore promising investments because you’re not familiar with the company or industry. Same goes for March Madness. West Coast powerhouses UCLA and Arizona are having superb seasons, but because their games are on too late for most East Coast fans, they’re far less likely to make the Final Four in brackets filled out east of the Mississippi. Likewise, West Coast hoops fans are far more likely to overlook UConn and Marquette, even though both programs have been in the national top 10 and make it to the Big Dance almost every year.

Overconfidence Bias is another derailer for both investors and bracket players. Most pool participants have massive confidence is top-ranked teams. Yet, only once in the history of the tournament (2008) have all four No.1 seeds made it to the Final Four. Some years only one of the four No.1 seeds will make it that far—you never know which one.

Anchoring is another common fallacy known to affect millions of investors and NCAA Tournament pickers. It’s the misguided belief that “Duke or Kentucky ALWAYS get to the Final 8” or that “Kansas and Purdue NEVER win the big games” regardless of the team’s record or tournament readiness in a given year. Considering that star players often don’t stay more than one or two years at the elite programs these days, anchoring based on brand name or reputation is even more dangerous today than it was in the past.

Following the Herd. Oddsmakers love it when the American public stampedes over itself crowding into the same bets. Even though history shows all four No.1 seeds almost never make it to the Final Four in the same year, guess which teams have the majority of votes to make it to the Final Four this year: Alabama, Kansas, Purdue and Houston (the four No.1 seeds in 2023). If you’re keeping score at home, three of the four No.1 seeds (Houston, Alabama, and Purdue) have never won a national title. Hmmmn.

The “Halo Effect” comes into play when investors blindly follow the recommendations or investing choices of gurus such as Bill Gross and Warren Buffet. It’s the same when bracket pickers blindly follow the wonky statistical models of KenPom, 538, and RPI, or blindly pencil in the “sleeper” picks of their favorite TV analysts. As with the stock gurus on TV, the picks of the expert hoop heads on TV rarely pan out.

Then there’s the fallacy of “getting back to breakeven” a mental accounting trap that has plagued gamblers and investors alike for centuries. How many times have you held on to a losing stock for years, just waiting for it to get back to the original purchase price before you can convince yourself to sell it? Likewise, how many people keep selecting BYU (30 tournament appearances without a title); Missouri and Xavier (29 appearances without a title), Tennessee (25 appearances without a title); Alabama and Creighton (24 appearances without a title) to advance far in the tourney because they have a national following and win most of their regular season games each year. Then there’s Gonzaga University, formerly a little-known microcap from eastern Washington and now a mighty mega-cap. The Bulldogs have qualified for the NCAA tournament an amazing 24 straight years and have never won fewer than 23 games in a season over that span. They have an impressive 28-5 record this year and are currently seeded No.3. Just about everyone has the Zags penciled in for a deep run in the tournament despite having never won the NCAA championship. EVER.

Conclusion

Whether investing, gambling, or taking part in the friendly office pool, always check your emotions at the door. Working with an objective, independent advisor is one of the best ways we know to prevent your intuitions from causing you to stray from your plan and making costly mistakes you’ll later regret.

Who’s your pick to win it all and why? I’d love to hear from you.

#marchmadness, #behavioralfinance, #bracketsbusted

First let me tell you why I love the annual NCAA men’s Division I basketball tournament (aka March Madness). It’s the ultimate reality show. Where else can little known universities such as St. Peters, Loyola of Chicago, Murray State, Weber State, Florida Gulf Coast and Valparaiso suddenly jump into the national limelight with upset wins over perennial powerhouses.

If you don’t think March Madness success has much to do with a school’s brand recognition or athletic recruiting, think again. I know it’s hard to believe but 20 years ago, no one outside of eastern Washington had heard of Gonzaga University. Now the Zags are a national powerhouse. In fact, they’re the No.1 ranked team in the entire country ahead of Kentucky, UCLA, Kansas, Duke, North Carolina and all the Big Ten universities.

Don’t think that helps a school’s brand? Since 1999 applications to Gonzaga have increased 300 percent and enrollment has increased by  more than 86 percent. Hmm.

This year’s “Cinderella” team has been tiny St. Peter’s University of Jersey City, NJ (undergrad enrollment 2,200), The Peacocks upset mighty Kentucky (31,000 undergraduates) in the first round and then defeated former Cinderella Murray State in the second round to remain one of only 16 teams left in the tournament. Only 1.5 percent of brackets had the “Peacocks” advancing to the “Sweet 16.” St. Peters head coach Shaheen Holloway earns a fraction of what the lowest paid assistant in the Kentucky program earns.

What’s not to like?

St. Peter’s president, Eugene Cornacchia, told the North Jersey media “For our whole community, this is a seminal moment in our history. We can’t put $8-10 million into the (basketball) program,” [referring to Kentucky?] “but nonetheless you see what we can do if you have a great coach and players who are hard-working and committed. This is truly a miracle story.”

Not only did the St. Peters website crash after the win over Kentucky, but Cornacchia said the school has already seen increased applications from students. “There’s just been an outpouring of media attention across the country that has been unbelievable. Now I know why they call it March Madness… We’ve been hearing from people around the country about our T-shirts. We ran out real fast.”

Bracketology is not an exact science

Feel good stories aside, I love filling out the tournament brackets as do 20 million other sports fans, office workers, lodge buddies, fraternity brothers and millions of other people who never watch college hoops the rest of the year. Filling out brackets can be great for office morale, despite the drop in productivity. Plus, the tourney is a great reality show. It’s got heroes and villains, alliances and backstabbing. There’s no best of seven. It’s single-elimination win or go home. Just pick which team you think will win each game and each round. It couldn’t be easier. But it’s not — at least for humans.

There’s no shortage of information to make an informed decision and you don’t have to be an “accredited” gambler to play. It’s almost impossible NOT to find a free printable bracket on the web. You get the official NCAA seeding number for each team (ranked 1 through 16). You get their season record. The Vegas odds for each game are everywhere on the web. You can even get injury reports, stats for each player, and each team’s national ranking on two-dozen common metrics. It’s all publicly available and free of charge.

Yet nobody – NOBODY — seems able to fill out a perfect or even near-perfect bracket. This year, not a single one of the 20 million brackets filled out on the Yahoo, Capital One or CBS Sportline bracket challenges were correct after the first two rounds of the tournament. In fact, only one of the 20 million brackets had even 15 of the remaining “Sweet 16” correct and only .001 percent had even 14 out of 16 teams remaining.

As with stock picking, humans are just lousy identifiers of winners, even when you have a wealth of information, years of experience and high-powered computers at your disposal. Here’s another dirty secret. Despite all the upsets every year, you can do darn well just by picking the favored teams (i.e., the higher seeded ones). It’s like investing in index funds – unmanaged and emotion-free.

You’ll consistently finish in the 75^th percentile of your office pool just by picking the large cap favorites. This year that unmanaged “set it and forget it” strategy would put you in the 91^st percentile as we enter the Sweet 16. Sure, you need a few low-ranked small caps and under-valued “value picks” to score some bonus points in the early rounds, but by the time we got to the Elite 8 and Final Four, the big boys tend to rise to the top.

Going back to 1985, #1 Seeds have won the national title about two-thirds of the time (23 out of 36). That’s more than all the other seeds combined. Teams seeded #2 have won the title five times, #3 seeds have won four times and then just a smattering of one-offs for the remaining years. No team seeded 9^th or lower has ever won the tournament.

So how much alpha are human bracketologists adding? Not much. Just like active managers. That’s what makes March Madness fun – especially for behavioral finance observers like me. Just don’t put real money into your March Madness wagers.

Conclusion

Even with perfect information and a level playing field, humans just can’t override their emotions when it comes to March Madness. Same goes for the markets. I’m okay with that and so is my wallet.

Don’t agree? Tell me why.

Here’s how you can support the people of Ukraine

First let me tell you why I love the annual NCAA men’s Division I basketball tournament (aka March Madness). It’s the ultimate reality show. Where else can little known universities such as St. Peters, Loyola of Chicago, Murray State, Weber State, Florida Gulf Coast and Valparaiso suddenly jump into the national limelight with upset wins over perennial powerhouses.

If you don’t think March Madness success has much to do with a school’s brand recognition or athletic recruiting, think again. I know it’s hard to believe but 20 years ago, no one outside of eastern Washington had heard of Gonzaga University. Now the Zags are a national powerhouse. In fact, they’re the No.1 ranked team in the entire country ahead of Kentucky, UCLA, Kansas, Duke, North Carolina and all the Big Ten universities.

Don’t think that helps a school’s brand? Since 1999 applications to Gonzaga have increased 300 percent and enrollment has increased by  more than 86 percent. Hmm.

This year’s “Cinderella” team has been tiny St. Peter’s University of Jersey City, NJ (undergrad enrollment 2,200), The Peacocks upset mighty Kentucky (31,000 undergraduates) in the first round and then defeated former Cinderella Murray State in the second round to remain one of only 16 teams left in the tournament. Only 1.5 percent of brackets had the “Peacocks” advancing to the “Sweet 16.” St. Peters head coach Shaheen Holloway earns a fraction of what the lowest paid assistant in the Kentucky program earns.

What’s not to like?

St. Peter’s president, Eugene Cornacchia, told the North Jersey media “For our whole community, this is a seminal moment in our history. We can’t put $8-10 million into the (basketball) program,” [referring to Kentucky?] “but nonetheless you see what we can do if you have a great coach and players who are hard-working and committed. This is truly a miracle story.”

Not only did the St. Peters website crash after the win over Kentucky, but Cornacchia said the school has already seen increased applications from students. “There’s just been an outpouring of media attention across the country that has been unbelievable. Now I know why they call it March Madness… We’ve been hearing from people around the country about our T-shirts. We ran out real fast.”

Bracketology is not an exact science

Feel good stories aside, I love filling out the tournament brackets as do 20 million other sports fans, office workers, lodge buddies, fraternity brothers and millions of other people who never watch college hoops the rest of the year. Filling out brackets can be great for office morale, despite the drop in productivity. Plus, the tourney is a great reality show. It’s got heroes and villains, alliances and backstabbing. There’s no best of seven. It’s single-elimination win or go home. Just pick which team you think will win each game and each round. It couldn’t be easier. But it’s not — at least for humans.

There’s no shortage of information to make an informed decision and you don’t have to be an “accredited” gambler to play. It’s almost impossible NOT to find a free printable bracket on the web. You get the official NCAA seeding number for each team (ranked 1 through 16). You get their season record. The Vegas odds for each game are everywhere on the web. You can even get injury reports, stats for each player, and each team’s national ranking on two-dozen common metrics. It’s all publicly available and free of charge.

Yet nobody – NOBODY — seems able to fill out a perfect or even near-perfect bracket. This year, not a single one of the 20 million brackets filled out on the Yahoo, Capital One or CBS Sportline bracket challenges were correct after the first two rounds of the tournament. In fact, only one of the 20 million brackets had even 15 of the remaining “Sweet 16” correct and only .001 percent had even 14 out of 16 teams remaining.

As with stock picking, humans are just lousy identifiers of winners, even when you have a wealth of information, years of experience and high-powered computers at your disposal. Here’s another dirty secret. Despite all the upsets every year, you can do darn well just by picking the favored teams (i.e., the higher seeded ones). It’s like investing in index funds – unmanaged and emotion-free.

You’ll consistently finish in the 75^th percentile of your office pool just by picking the large cap favorites. This year that unmanaged “set it and forget it” strategy would put you in the 91^st percentile as we enter the Sweet 16. Sure, you need a few low-ranked small caps and under-valued “value picks” to score some bonus points in the early rounds, but by the time we got to the Elite 8 and Final Four, the big boys tend to rise to the top.

Going back to 1985, #1 Seeds have won the national title about two-thirds of the time (23 out of 36). That’s more than all the other seeds combined. Teams seeded #2 have won the title five times, #3 seeds have won four times and then just a smattering of one-offs for the remaining years. No team seeded 9^th or lower has ever won the tournament.

So how much alpha are human bracketologists adding? Not much. Just like active managers. That’s what makes March Madness fun – especially for behavioral finance observers like me. Just don’t put real money into your March Madness wagers.

Conclusion

Even with perfect information and a level playing field, humans just can’t override their emotions when it comes to March Madness. Same goes for the markets. I’m okay with that and so is my wallet.

Don’t agree? Tell me why.

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