Behavioural Sports Economics

A Research Companion

Hannah Josepha Rachel Altman, Morris Altman, Benno Torgler, Hannah Josepha Rachel Altman, Morris Altman, Benno Torgler

• Publisher: Routledge
• Year: 2021
• Print ISBN: 9780367531843
• eBook ISBN: 9781000522747
• Edition: 1
• Topic: Volkswirtschaftslehre
• Subtopic: Wirtschaftstheorie

Economists have entered into the realm of sports to provide what they believe to be more cogent explanations for sport-related behaviour and to suggest ways in which incentives can improve sports outcomes. But prices and income, the traditional workhorses of conventional economics, can only provide partial explanations and understandings. Drawing on a bounded rationality approach to behavioural economics, this book demonstrates the analytical insights to be gained by supplementing the conventional economics toolbox with psychological, cognitive, sociological, and institutional factors.

The international cast list of contributors cover a wide range of sports topics on which a behavioural approach can reveal new insights. These include preferences, managerial, efficiency, choking, doping, favouritism, athlete well- being, and spectator behaviour. Throughout the book, there is an emphasis on the cognitive limits to smart decision-making as well as the critical role played by the decision-making environment. This volume demonstrates that adopting a bounded rationality approach, complimented with other behaviouralist approaches, helps to better explain sport-related behavioural, sub-optimal behavioural, and market failures. It also provides insights that could be used to improve sports outcomes and the well-being of those involved in sports and to better configure policy to enhance sports performance.

This groundbreaking book will be an indispensable reference to students and scholars of sports economics, sports management, and sports science.

1IntroductionBehavioural sports economics

Hannah Josepha Rachel Altman, Morris Altman and Benno Torgler

DOI: 10.4324/9781003080824-1

This book attempts to fill an important gap in the existing literature on sports economics, particularly as it pertains to behavioural approaches to the economics of sports.¹ To that end, we’ve adopted a pluralistic approach as our organizing framework, one well situated in the initial methodological advances of Herbert Simon. Simon always argued for a more holistic approach to economic analysis, one that not only incorporated price theory (Becker 1996, Stigler and Becker 1977) but also included important psychological, sociological, neurological, and institutional variables into the modelling of individuals and organizations engaged in sports.

We hope, therefore, that our contributions here will further enrich the existing behavioural sports economics literature as exemplified in the works of Downward, Dawson, and Dejonghe (2009), Kahane and Shmanske (2012), and Rodríguez, Kesenne, and Humphreys (2020). This book also takes as its starting point the well-known fact that naturally generated data from sports activities can facilitate the testing of a variety of economic hypotheses in both a rigorous and robust manner (Kahn 2000). Therefore, this book actively immerses itself into the world of sports to test our hypotheses and further enrich our understanding of human behaviour through the lens of behavioural economics.

Modelling realism and methodological pluralism

The realism of one’s modelling assumptions is fundamentally important to behavioural economics, rooted as it is in its points of origin. For Simon, a hardwired fault of conventional economics is its lack of concern and attention to the realism of its behavioural and institutional (decision-making environment) simplifying assumptions, which underlie the models being specified. Unrealistic assumptions yield models that fail to adequately predict—and, just as importantly, fail to explain and fail to establish a proper causal relationship between dependent and independent variables. As such, one can often end up with models that omit variables that are actually the most analytically significant independent variables.²

Taking a pluralistic approach to behavioural economics as we have in this book opens the door to modelling sports in terms of a more recent focus on heuristics and biases and nudging, following upon the work of Kahneman and Tversky (2000; see also Kahneman 2003); and Thaler and Sunstein (2008), as well as the fast and frugal heuristics approach pioneered by Gigerenzer (2007; see also Gigerenzer and Todd 1999). As well, we try to incorporate approaches that focus on the decision-making environment and the decision-making capabilities of the decision-makers themselves as having a significant impact on their decisions and outcomes. This is very much in line with Simon’s point of focus which is partially incorporated in the concepts of bounded rationality, procedural rationality, and satisficing (1959, 1978, 1987; see also March 1978 and Cyert and March 1963). These relate to the importance of institutional and related legal determinants of decision-making as underlined by institutional economists such as North (1990) as well as by Commons (1936), the latter being the pioneer of American institutionalism, celebrated by Simon in his work.

The importance of asymmetric information

Moreover, by going beyond the contemporary behavioural economics’ focus on heuristics and biases, this book is a port of entry to the significance of asymmetric, imperfect, and costly information as key determinants of decision-making and decision-making protocols, ideas very much central to the work of Akerlof (1970) and earlier work by Stigler (1961). Finally, this book also addresses itself to the question of the persistence of systemic economic inefficiency in sports performance, also referred to more generally as x-inefficiency. This builds on the research of Leibenstein (1966, 1979) and Altman (1996, 2002). Together, these various tools in the expanded economics toolbox facilitate a more nuanced approach to an analysis of sports performance, incorporating in it the behaviour of larger organizations, teams, team members, athletes and fans.

Contributions to this volume

In “Sport as a Behavioural Economics Lab,” Ho Fai Chan, David Savage, and Benno Torgler make the case that sporting events mimic the controlled, real-world, miniature laboratory environments, approaching the ceteris paribus assumption embedded in much economic theory. This also allows one to test a variety of hypotheses in a controlled environment by exploiting naturally generated data, as well as the implications of decisions, different incentives, and constraints on outcomes. They find that a growing number of studies use sports data to test decision-making related hypotheses which are critical to the behavioural economics enterprise. This economics laboratory remains fertile ground for future research. In “Sports Performance and Organizational Inefficiency,” Hannah Altman and Morris Altman model how the persistence of inefficiency in sports performance is possible even in the realm of professional sports and why market forces can’t easily correct this inefficiency. Specific organizational forms, the preferences of decision-makers, and specific mental models are critical determinants of the extent of efficiency. Furthermore, certain imperfect markets and asymmetric information inefficiency can be a product of errors in decision-making, which are correctable. But, inefficiency can prevail when fans support ‘inefficient’ (not very successful) sports teams due to the utility provided by their own teams, when owners’ profits remain acceptable even in the face of organizational inefficiency, and when sports teams are vanity goods yielding erstwhile utility to owners. More generally, in their chapter, “Institutional dynamics in sports – how governance, rules and technology interact,” Stuart Thomas and Kieran Tierney examine key institutional characteristics of technology-driven sports; i.e., sport that uses reasonably sophisticated equipment. They investigate the hypothesis that sports represent the intersection and interaction of institutions and technology, exemplified by bicycle, sailboard, motor car, and in e-sports, whilst the sustainability of a sport is largely determined by its institutional environment. The manner in which sports evolve is analysed through the prism of what they refer to as ‘evolutionary sports dynamics’.

Wladimir Andreff, in “Wrong Behaviour due to Wrong Incentives: How Transform Doping into a Self-defeating Game?”, discusses the evolution of doping from cheating to an economic crime, where the latter has been facilitated by an inappropriate incentive environment. This includes the rules to ban doping in sports events, which are not properly enforced and where the benefits of cheating outweigh the costs. Athletes’ behaviour must be transforming through a dramatic change in the incentive environment, where the dominant strategy is not to ‘over’-dope and over-doping becomes a self-defeating strategy. In “Disincentives, Disequilibrium’s and Discrimination: Behavioural Economics in Women’s Sport”, Stephanie Manning, Ho Fai Chan, and David Savage make the fundamentally important point that incentives matter to gender equity in sport. This chapter provides a theoretical and empirical analysis of gender discrimination as it pertains to sports. One reason that women are not being better represented in professional sports and even in coaching and administrative roles is because there are inadequate pathways for women in sports, a product of discrimination that feeds back into gender differences in wages and human capital formation, for example.

In “Winner Alright? New Evidence on High-Stakes Bidding and Returns to Ownership in the Thoroughbred Horseracing Industry”, Robert Butler analyses competitive bedding behaviour using a unique data set from Great Britain and Ireland. His results confirm the widespread belief that a large percentage of thoroughbreds incur losses or negative returns. These losses are consistent with the winner’s curse hypothesis, but it is argued that one should also look to the motivation of owners (their preferences) for owning thoroughbreds to best explain the persistence of the large losses incurred in this sport.

Alex Krumer’s “Does psychological momentum differ for home and away teams? Evidence from penalty shoot-outs in European Cups”, an empirical analysis of penalty shootouts during two-leg ties of European Cup football (soccer) tournaments, suggests that scoring more goals than one’s opponent in the second leg increases the probability of winning the shoot-out. But this is true only for the away team. This supports the view that there is a positive effect of psychological momentum, but only for the away team. Playing in front of one’s fans has a negative effect on performance in this scenario. Tim Pawlowski, in “Reference Point Behavior and Sports”, reviews and provides structure to the literature, empirically testing reference point behaviour in sports. This chapter reviews two strands of the literature, one referring to the behaviour and decisions of athletes and coaches and the other to the behaviour and decisions of fans. Data from sports settings are found to be highly relevant to analysing the importance of reference point behaviour more generally. In “The Importance of the Serve in Winning Points in Tennis: A Bayesian Analysis Using Data for the Two Winners of the 2019 French Open Singles”, Vani Borooah adds empirical substance to Bayes’ theorem in the context of professional tennis. Borooah examines the performance of Rafael Nadal and Ashleigh Barty, the winners of the men’s and women’s singles titles, respectively, at the 2019 French Open. A key finding of this chapter is that given the prior likelihood of their winning a point on their service game, this had to be revised upward if the data showed that their first serve was ‘good’ and had to be revised downward if the point required that they serve again. This application of Bayes’ Theorem to tennis is an example of how evidence can be turned into insight.

In “Beauty and Preferences Formation Exemplified in the Sports Market”, Hannah Altman, Morris Altman, Benno Torgler, and Stephen Whyte discuss and model the use of beauty and, relatedly, sexiness as a fast and frugal heuristic and therefore an im...

Table of contents

• Cover
• Half Title
• Series Page
• Title Page
• Copyright Page
• Dedication
• Table of Contents
• List of figures
• List of tables
• List of contributors
• 1 Introduction: behavioural sports economics
• Part 1 The big picture
• Part 2 Incentives, governance and sports behaviour
• Part 3 Momentum and reference points in sports behaviour
• Part 4 Heuristics, sports, behaviour and outcomes
• Part 5 Fans, fan behaviour, and sports outcomes
• Part 6 Happiness, and socioeconomics determinants of sports participation
• Index