Are NBA coaches behavioral or neoclassical?

Snnk cost do not matter once spent. Yet, we just cannot help thinking that if we already paid so much for something, we should rather use it, even if it is inferior to something less expensive. With this reasoning, we deviate from neoclassical theory into behaviorial theory. Such attitudes are not well documented, and it is not quite evident how one would put together a dataset to study attitudes towards sunk costs.

Daniel Leeds, Michael Leeds and Akira Motomura found a way, and it is in front of everyone. Professional sports teams sometimes invest or commit considerable resources to recruit players, and a substantial amount can be considered sunk, as it is in the form of a signing bonus, guaranteed pay, or by using an early draft pick for new players. A neoclassical theorist would say that this sunk cost only allows the coach to expand his decision set, but who actually plays on the team should only depend on the players' current performance. This study shows that at least NBA coaches do follow this neoclassical thinking and are not more likely to let under-performing young player stay on the team if they were drafted in the early rounds. Indeed, the data focuses on players in the first five NBA seasons when they all have a uniform contract, thus only draft order should matter. However, there could have been a perfectly neoclassical justification for a bias on the part of the coaches: some players were drafter early because they have potential, and that potential is going to develop with playing time. If there is a puzzle it is thus rather why early draftees get so little playing time.

What are the arguments for hosting sports mega-events?

I have argued several times already that hosting sports mega-events does not have a lasting impact and that the current impact is limited to the sectors providing directly services to the event (exhibits 1, 2, 3). Yet, politicians continue to come up with rationales why such events should be hosted locally and why public funds should be devoted to them. Is it that we economists are missing something here, or that the politicians are fooling everyone?

Marcel van den Berg and Michiel de Nooij observe that the immediate financial or economic gain from hosting is negative, thus one needs to finds arguments for hosting elsewhere. They highlights a series of biases among politicians that makes them commit to events they cannot afford. First, politicians commit early, before realities about what it implies have sunk in. Politicians thereafter rarely change opinions. Second, they are swayed by arguments about positive externalities like revitalizing areas or building otherwise useful infrastructure. But you can do all this without a mega-event. Third, they see only success stories. Fourth, the bidding process for a mega-event leads to a winner's curse like in any auction. Fifth, media are obviously biased in favor of hosting. Reporting on such events is their livelihood. Sixth, such mega-events provide excellent opportunities for "redistribution" of public funds to lobbyists. Seventh, it is all about pride. What a costly way to provide that.

Competitive behavior by gender: jumping to conclusions

Men are more competitive than women. Whether this is genetic or nurtured is much studied and occasionally discussed here (I, II, III). I do not think there are definitive answers because it is very difficult to find an environment where one can pursue a truly controlled experiment. If we keep adding varied studies, however, we could get to a clearer picture and finally understand whether girls are at a disadvantage in a competitive environment and need to be helped.

An interesting recent study is by René Böheim and Mario Lackner who study jumping competitions. In high jump and pole vault competitions, athletes fail out after three successive misses and need to choose heights strategically as the competition evolves. They do not want to jump too much, especially as they need to keep their best jumps for last. But it is also risky to skip many heights, as one may start with three misses on a bad day. Interestingly, the strategic choices of men and women differ. Men take more risky decisions despite the fact that the return to risk is lower. What is particularly interesting here is that men and women differ in a context where they do not interact. Were they to compete against each other (applying the appropriate handicap), women would appear to be less competitive.

So is this study compelling evidence of innate differences? No. First, the women competing in jumping competitions were still raised in an uncontrolled environment. Second, we are only looking at elite athletes here, and analyzing the extreme tail of an unknown distribution does not help in making conclusions about the general population. And third, I think even the membership in this distribution tail is not equivalent. It is well-known that much fewer women participate in competitive sports, and they likely face less competition. In a winner-takes-all context, as a consequence you do not need to be that risk-taking.

Overconfident NBA players are lead to a financial demise

Some professional athletes manage to amass amazing fortunes only to file for bankruptcy a few years after their retirement from sports. How can such large wealth go to waste so quickly? The typical explanation is that poor investments were made. Why does it happen so frequently to them? My take has been that either their wealth attracts swindlers, or the comparative advantage of these athletes is not human capital, or both.

Ruby Henry thinks this has to do with over-confidence. He builds a database of NBA players drafted in the 1990's and collects from various Internet source information about their personalities and their professional characteristics. The first sign of trouble is that most of those venturing into entrepreneurial undertakings do it in food services or real estate, two sectors were bankruptcies are particularly common. The second sign is that they do not seem to diversify much. One can interpret this as the consequence of over-confidence in one's ability and luck. Ruby measures the level of confidence of a player with the number of 3-point shots attempted per playing minute. And it appears that shooting for more 3-pointers later leads to more business ventures, and more bankruptcies. That would explain the variation across NBA players. But does that explain why NBA on average have more bankruptcies, and especially more spectacular ones?

The economics of yoga

I appreciate yoga because it helps my stiff body to loosen up, and because it forces me to take some time off the multiple things I do to calm down. But I would not call this meditation, although many people do. I chat during the moves, thus for me it is a purely physical experience. Many others do it for the opportunity to free up and "purify" your mind, although I have been suspicious about such claims. It would take me an economist to convince me otherwise, and maybe the following study does.

Giovanni Di Bartolomeo, Stefano Papa and Saverio Bellomo look at how yoga and supposed meditation changes the way people trust each other and cooperate. They exposed some participants to yoga meditation (with Tibetan singing bowls no less) before an investment experiment. The "pre-meditated" participants showed lower risk aversion and more trust than the non-exposed ones. I wonder how this small experiment would scale up. Do countries with cultures based on meditation also have higher levels of trust and risk tolerance? Do they have institutions that rely more on trust? Something to ponder over the holidays.

There are too many swimming and gymnastics medals

As the 2012 Summer Olympics draw to a close, people get all upset about how the medal count does not truly reflect which country is the best because some events are not true sports, some other is over-represented or absent, or judged events do not count and team events should count more. This is all bullshit. First, the International Olympic Committee does not even have an official medal count. Second, any such discussion makes no sense if one does not at least take into account the size of the country. Nations with hundreds of millions of citizens will obviously have a better shot at finding star athletes in many disciplines, let alone find several of them for a team event. To take an example, that the Bahamas can be a medal contender in track relays is in my mind a much more valuable outcome than the US winning a handful of track gold medals. If anything, countries should be ranked by how much better they contended compared to what one would have expected from their size and development. The larger the positive forecast error, the better.

So much for the first part of my rant. The second is that some events are crassly over-represented, and here I am pointing my finger at gymnastics and swimming. My criterion here is the ease with which a single athlete can amass a multitude of medals. I can understand that when there is an exceptional athlete, it is OK for her to accumulate many distinctions. But when this happens repeatedly for a sport, there is a problem. Looking at the list of multiple medal winners on Wikipedia, it is striking how frequently gymnastics and swimming appear. For athletes with ten or more medals, we have 13 in gymnastics, 9 in swimming, 3 in cross-country skiing, 2 in track and field, 2 in fencing, 1 in shooting, 1 in canoeing, and 1 in biathlon, for a total of 32. No matter what statistical model you use, it is impossible to argue that the concentration of athletic outliers can be that high in gymnastics and swimming.

Why are Olympic Games always more expensive than planned?

Rare are the big sports events that stay within budget, and those that do are criticized as being too "commercial." I would suspect this is because organizers try to submit a budget that seems appealing, knowing that it is the lower end. Of course, by now everyone should realize this, especially legislators, but they may like the idea and care less about the cost and thus may be willing to go along with the mis-representation. Once additional funds are needed, legislators are either to go along anyway or they are forced to accept given all the money that was sunk into the project. And they think about the benefits that come with such events, which is actually not true (previous posts: 1, 2)

Wladimir Andreff has a better take at this than my random thoughts. In the case of the Olympic Games, he notes that the only recent games that did not suffer from a "winner's curse" by overbidding was Los Angeles 1984, which was the only candidate at the time (there was a big financial mess for Montreal 1976 that discouraged other candidates). So it would look like having competition drives candidates to pretending they need too low budgets. The recommended solution is to get rid of candidates altogether: have the games at fixed locations (one for Summer and one for Winter), as I have called for before.

Stock market trader inattention and major sports events

Whenever some important sports event looms, the popular press inevitably comes up with articles about the loss of productivity during said event. The quoted numbers have always been a mystery to me, as I have yet to see any serious study about this. Well, now there is one, sort of.

Michael Ehrmann and David-Jan Jansen analyze stock market activity during the 2010 FIFA World Cup in South Africa. Using minute by minute activity from 15 stock markets, they find that there are markedly fewer trades when games are on, especially when the home side plays, roughly half of normal trades. That may be because traders are less attentive to markets, but also because domestic investor are less on the ball, so to say. The effect is amplified by goals.

There are other times when attention is decreasing, such as lunchtime. The decrease in trades may have some welfare implications, as some arbitrage opportunities are not taken. However, it appears to be more serious that there is a change in patterns for prices during those football matches, unlike lunch time. Indeed, the cross-section of returns across firms is lower, and the correlation of domestic prices with world prices drops by 20% when a game is on. I cannot quite quantify how much of a welfare consequence this is, I would need a model for that, but I guess this is not negligible. NB: these effects are also present on US stock markets, despite the marginal interest in soccer.

The impact of poor scheduling of international football tournaments on English GCSE results

For every big sports event, there are two types of economic studies that make the news: the ones about the economic impact, which essentially add up all the expenses somewhat related to the event (sometimes applying a multiplier), never mind the fact that all this could have been spent on something else, and the studies about productivity losses because people are sleepy or distracted at work. I remember from school days that these events would also have a tendency to fall on exam period, which was a serious drag on exam preparation. How much? Someone finally figured it out.

Robert Metcalfe, Simon Burgess and Steven Proud exploit the fact that every two years a major international football tournament overlaps with important exams at the end of compulsory schooling in England. And their results are not pretty: male students as well as disadvantaged students suffer disproportionately from the competition for their attention. From them, exam scores are reduced by 0.2 standard deviations, which substantial, and as the authors note as large as some policy interventions. Just rescheduling those exams could be more effective than pouring money into some school initiatives.

Athletes are more competitive, but also more destructively envious

Student athletes are better than average students, despite having some sports severely dragging down this record. My impression is that these students know that they have less time to study and thus do not fool around like the others. They develop superior time management skills and thus obtain better results with less time to study.

Another aspect I did not think about is that athlete are more competitive. It is in part selected and in part learned: they get into sports because they are competitive, and they become competitive because they are athletes. Jérémy Celse shows that this is a mixed blessing, though. Once they have graduated, they also get an edge from being competitive and used to compete. However, athletes are less cooperative and find satisfaction in hurting others. Using an experimental approach, Celse finds that (self-declared) athletes behave anti-socially and with more jealousy than others when learning they did worse than their experiment partners (or opponents). In other words, do not count on athletes to be team workers. It is unclear whether this applies also for those practicing team sports. The variable was captured, but I see no result using it.

Which childhood sport is more promising for labor market outcomes

Which sport should you encourage your child to adopt? My guess would be cross-country running, swimming and rowing, which have all the important characteristic of encouraging perseverance and long-term planning. They also make your child hang out with the "right people" as these athletes feature prominently among the best students. But these are just my impressions, let us see what can be done with more than anecdotal data.

Charlotte Cabane and Andrew Clark look at US schools, although not quite at the level of athletic detail I would have wished. Healthy students are more likely to participate in sports and later be successful in life. But those participating in sports are also more likely to be healthier. The direction of the causation is not clear. But of interest here is whether participation is sports is an important determinant in latter outcomes. Using the National Longitudinal Study of Adolescent Health, which looks at students who were in grades 7-12 in 1994-95, they can track how the students are doing as late as 2008. In the end, participating in team sports once a week as a student increases the hourly wage by 1.5%. Not a lot but still significant, especially as this for adults in their thirties, and gaps tend to widen later on. Individual sports seem only to have an impact for adult outcomes of girls.

Referee home bias

Referees are supposed to be impartial. In academics, this is most of the time helped by the fact that they are anonymous. In sports, referees are public and meeting participants, including spectators, try to influence them. This becomes particularly relevant when the referee has to take a decision against the home team than leaves spectators irate. They could retaliate against him. Does this influence referees?


Andrés Picazo-Tadeo, Francisco Gónzalez-Gómez and Jorge Guardiola Wanden-Berghe look at first division football in Spain, carefully taking into account stadium capacity, how full it is, how far spectators are from the pitch, and referee experience. They find that awarding a free kick does not have a home bias, which is consistent with the fact that this is a split-second decision. The ensuing decision to give the offending player a caution is, however, affected by home bias. This decision is not instantaneous, and social pressure can be exerted on the referee, especially when the stadium is full. The presence of a running track that separates the local supporters form the action does not seem to matter, though. I wonder whether some teams have a larger home bias than others, as the fans' reputation could also influence referees.

Does hosting Olympic Games matter after all?

Is seems to be common knowledge that attracting big sports events is good for business and especially tourism. I have never found this argument particularly compelling, after all it is mostly local residents who attend such events. And previous research I reported on gives me right: in the case of the Atlanta Olympics, the impact was very short-lived and limited to the tourism industry. But maybe there is more and better evidence.

Markus Brückner and Evi Pappa take a different approach form the traditional impact study: they look at macroeconomic aggregates and focus on the anticipatory effect during the bidding process for the Olympic Games. The fact that a country is bidding gives people an indication that aggregate demand may increase in the future, especially if the country is selected into the last set of candidates. This anticipation can increase economic activity right now. Brückner and Pappa study a panel of 184 countries over 57 years. They find higher GDP growth during the five years before hosting, peaking at four years when the next host is announced. As expected, the impact fades quickly for unsuccessful bidders. And results are robust for World Exhibitions, but strangely reversed for Football World Cups. In all that, I wonder whether bidding for such large events is in fact exogenous. Indeed, you only want to bid if you have a healthy economy, especially if the event is large like the Olympic Games.

Do professional sports teams belong on the stock market?

Professional sports clubs exist to win, but this often requires money. Different models have developed in this regard. The US model is private ownership of clubs within a cartel, where private ownership is meant to be a single person, or a small group of people. The European model is broad membership with few benefactors who do not own the club, and clubs operate within an open league system (promotion and relegation based mostly on sport results). But over the last two decades a good number of European clubs went public and are now listed on stock markets. This highlights a change of priorities, profits over sport results, although the two are clearly correlated. But how well do these clubs fare?

Michel Aglietta, Wladimir Andreff and Bastien Drut note that the performance of sports stock is rather weak, and thus has not attracted institutional investors as was probably hoped for. This weak performance is not that surprising, I suppose many hold such stock to frame it above the TV set. It may also be due, as the authors argue, to the fact that sports clubs have poor governance. So, maybe the next step is to run them like a business where the objective is to maximize shareholder value, and make sport results only a means to generate these profits.

Football has an impact on college quality

US faculty members are currently quite frustrated with sports programs on their campuses as the swallow substantial budgets at the expenses of academics. Very very programs yield a profit, even (American) football is in deficit save for a handful of colleges. And coaches get salaries that are completely disproportionate to the academic mission of universities. Then why are universities willing to invest all this money in sports? The standard answer that this builds alumni loyalty cannot be good, as they typically donate to the athletic foundation, which is run independently from academic budgets. The only advantage, so to speak, are that they reduce the deficit that needs to be covered by academic funds. Another argument is that it attracts better students. I can believe that for some sports, where student athletes are better than the general student population. But there should be better ways to attract good students, like merit scholarships.

Sean Mulholland, Aleksandar Tomic and Samuel Sholander claim that even the football program improves the academic quality of the student body. It is not that the football player are academically gifted, they are certainly not, but it is all about attracting other students. Their assessment is not based on actual fact, but rather on peer evaluation of faculty and university administrators, as they are records in the US News and World Report college rankings. And the better a sports team is, also from peer evaluation by football coaches, the better is the academic reputation of the student body. Now that the rumors have been established, it would be good to back this up with facts...

Video review in football/soccer

The Australian Football Association has started to implement post-match video reviews to help in refereeing games and in particular uncover things the field referee may not have seen. The most striking example so far has been the reversal of an added-time penalty kick that followed a dive by an attacker. The diver is now suspended for two games, and the goalie got his red card reversed.

After the multiple controversies in the last World Cup about outcome determining refereeing errors, FIFA has been adamant that it is not considering overriding the authority of the referees on the field. The Australian initiative is definitively a thorn in the eye of FIFA, and it will be interesting to see how the football politics pan out.

But beyond this, this could lead to particularly interesting behavior on the field. Suppose a penalty kick is awarded on a dive. The diver, knowing that the decision could be reversed after the fact and new punishments could be handed out, could volunteer and ask the referee not to give the penalty kick. Should the referee accept this plea that undermines his authority on the field? Obviously his authority off the field is lost with post-match video reviews, but his decisions still have an impact.

In any case, I would love to see this implemented in Southern European leagues or in South America. It would make football strategy even more interesting.

Olympic Games have no long-term impact on employment

Is it worth holding mega-event like Olympic Games? Repeatedly, they turn into a financial fiasco, yet new organizers keep believing they can pull it off. Usually, they manage to obtain some public guarantees or even financing on the grounds that such an event and the infrastructure will kick-start an economy and encourage tourism beyond the event.

Arne Feddersen and Wolfgang Maennig show that these beliefs are wrong, at least for the 1996 Olympic Games in Atlanta. They concentrate on the impact of these games on employment, and using monthly data they cannot find any impact in any sector, except for the sectors directly affected by the event, and only for the duration of the Games: retail trade, accommodation and food services, arts, entertainment, and recreation. How disappointing. I can only reiterate that such events should find a permanent home.

Now that the Olympics are over

Now that the Olympics are over, Vancouver is stuck with infrastructure it will not use, and the town will soon discover that not everything is paid for and a substantial debt will need to be serviced. It is like this after every Olympic Games. And inevitably, there are calls that the Olympic Games should find a permanent home.

I agree. The is considerable waste in providing oversized infrastructure for a few weeks and the be left with while elephants. The best example is the Olympic stadium in Montreal, or the ski-jumping and luge/bobsleigh installations in most Winter game locations. If games happen in a location that needs an infrastructure push, the money is better spent in installation that are needed in the long run.

And where should the permanent home of the Olympics be? For the Summer Games, Athens seems to be an obvious choice. This is where they originated, they where held there recently, and thus the infrastructure is already in place. Summers are really hot, though, so holding them in September is probably better. And Greece could use some revenue.

As to the Winter Games, they should be held in Switzerland, and more precisely in St. Moritz. Games were there already twice, again, there is infrastructure in place. Also, Switzerland has the advantage of being neutral and thus less subject to boycotts. And do not forget that the Swiss are very efficient, have an excellent transportation system and a top tourism industry. And the International Olympic Committee has its seat in the country.

My voice does not count for much in this decision, but add me to the chorus that is calling for an end to this waste of resources.

The Boris Becker effect

Sports personalities are often packaged as role models for future generations, implying that their workj and perseverance has paid off, and one should emulate this. One consequence is that when a sport star emerges, it should attract many in his sphere of influence to do the same thing. An example would Tiger Woods enticing many blacks to pick up golf. This is much like many boys would to become firemen after seeing a firetruck rushing down the road. But does this work at all?

Arne Feddersen, Sven Jacobsen and Wolfgang Maennig analyze the supposed Boris Becker effect, that more people picked up a tennis racket with the successes of Boris Becker, Stefi Graf and Michael Stich. Well, it turns out it did not work that way at all. With the rise of these stars, tennis memberships went down, and after their retirement, they went further down. The latter efect would be expected, but not the first. While this is just one data point in studying the impact of role models, it is quite puzzling. The authors have three untested hypotheses: fatigue from over-exposure to tennis, the belief that such performances can only be the result of doping, and discouragement that the stars' results are unreachable. Intuitively, I have my doubts about all three. This remains a puzzle.

Open platforms versus cartels in professional sports leagues

What makes a sports league more competitive? More interesting? And more profitable? We have two basic models out there. The European model, with open entry, promotion and relegation on mostly athletic grounds, and the American model, a cartel with regulated entry and no exit except on economic grounds. Basic economics should tell us that an American league should be more profitable but of lesser athletic quality, while the European one should be providing more value, both in terms of quantity and the quality of the good (say, athleticism and entertainment).

Helmut Dietl and Tobias Duschl confirm this conjecture. Indeed, the six top revenue generating teams are European, but some of them are still not profitable, and as in the case of Manchester United, despite significant athletic success. Dietl and Duschl use platform organization, a form of two-sided market theory, to get some better understanding of sports league organizations. In this regard, European leagues can be compared to open source like Linux, open and performing, while American leagues are like Windows, underperforming but most profitable.

Table 2 from the paper summarizes well the differences between the leagues. In European ones, most clubs are members' associations that try to maximize wins. Leagues are open (promotion/relegation), there is full market coverage, hardly any relocations (I cannot think of one), and no salary caps. As a consequence, value (as defined by athleticism or entertainment) is maximized. Contrast this with American leagues, where clubs are privately owned and maximize profits. League are closed, there is rationing, frequent relocation and a salary cap. Thus, American leagues maximize value appropriation.