A Winning Combination? Economic Theory Meets Sports

By Engemann, Kristie M.; Owyang, Michael T. | Regional Economist, January 2009 | Go to article overview

A Winning Combination? Economic Theory Meets Sports


Engemann, Kristie M., Owyang, Michael T., Regional Economist


Unlike researchers in the natural sciences, economists often lack the ability to conduct laboratory or controlled experiments to test theories or make inference. In recent years, economists have begun to study "natural experiments"-naturally occurring events that provide a researcher with a basis to analyze outcomes within a clearly defined setting. One such artificial laboratory that economists have discovered is sports. Economists have used data from sports to examine such diverse issues as (1) risk behavior, (2) market efficiency, (3) market power and (4) discrimination.

Risk Behavior: Does Maximization Predict Coaches' Decisions?

A basic assumption in economic models is that, in competitive markets, firms maximize profits. In the sports world, such maximization might be seen as a coach maximizing his team's chance of winning. Economist David Romer tested whether coaches make the optimal choice in a fourth-down situation in the National Football League (NFL). He argued that this analysis should be similar to the firm maximization model because winning is highly valued, coaches have pressure to win due to the competitive nature of the job and teams can learn from past experiences.

Romer studied all of the regular-season NFL games during the 1998, 1999 and 2000 seasons, but used only the first quarter of the games in his analysis; later in the game, teams may change their strategy based on the score. Therefore, the first quarter should yield the best insight as to whether teams maximize their chances of winning. Romer analyzed the expected payoff from going for a first down on the fourth down at every point on the field versus kicking the ball (punting or a field goal attempt). His analysis compared the expected values of the outcome of a play, as well as the expected value of leaving the opponent with the ball at that spot on the field.

After taking all results into account, he estimated that teams are better off going for a first down than punting if they have fewer than four yards to go in their half of the field; if they have fewer than 6.5 yards to go on the other team's 45-yard line; and if they have fewer than 9.8 yards to go on the other team's 33-yard line, at which point teams are within typical field-goal range. After the other team's 21-yard line, the value of going for it frequently outweighs the expected value of kicking a field goal, and at the 5-yard line, the team is always better off going for the first down or touchdown.

How did Romer's predictions compare with actual plays in the NFL games? In situations where teams were expected to be better off kicking the ball on fourth down, they went for a first down less than 1 percent of the time. However, when teams were expected to be better off going for a first down, they kicked the ball almost 90 percent of the time. Romer estimated that if a team optimized in these situations throughout the whole game, it would win one more game every three seasons.

Romer surmised that coaches' previous experiences might cause more conservative decisions than one would predict using standard assumptions about optimizing behavior. Alternatively, a coach's objective might be more complicated than simply choosing plays that would result in the highest expected outcome. For instance, he might view activities that decrease the chance of winning (e.g., a failed first-down attempt) more negatively than he views a successful activity positively, which could stem from fan or owner preferences.

Risk Behavior: Does Game Theory Predict Player Behavior?

What happens when only two players are involved rather than entire teams? Economists Pierre-André Chiappori, Steven Levitt and Timothy Groseclose tested whether kickers and goalies used mixed strategies (i.e., chose strategies at random) to optimize their chances of being successful during penalty kicks in soccer. Even though soccer is a team sport, the penalty kicks involve just those two players and thus allow for a test of economic game theory.

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