Economics in Action

A soccer penalty is a good example of a situation where two choices made at the same time determine each other’s success or failure. Since the ball moves so fast, the goalkeeper has to move as soon as the striker moves. If a striker is likely to shoot to the left, it is in the goalie’s interest to move in that direction. But if the goalie is going to do that, then it is in the striker’s interest to shoot to the right, and so on.
It can be shown mathematically that the optimum for both players is to choose the left, right or centre unpredictably. Two studies by economists compare the behaviour of real professional football players to this ideal behaviour identified by economic theory, and find a good approximation. In other words the football players are doing good intuitive economics.

Look it up: I. Palacios-Huerta (2003) “Professionals Play Minimax” Review of Economic Studies, 70, pp. 395-415.

P.-A. Chiappori, S. Levitt, and T. Groseclose (2002) “Testing Mixed-Strategy Equilibria When Players Are Heterogeneous: The Case of Penalty Kicks in Soccer” The American Economic Review, vol. 92 no. 4, pp. 1138-1151.

Found via Tim Harford’s “Dear Economist” column in the Financial Times.

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Economists at Nottingham University Business School and Nottingham Trent University claim to have found a way to beat the bookies and make money out of spread betting.

In a paper presented at the Royal Economic Society’s Annual Conference, Dr David Paton and Dr Leighton Vaughan Williams show that punters can take advantage of different odds quoted by spread betting companies.

The two economists investigated returns to spread bets on one of the most popular markets, the number of bookings points in Premier League football matches. Dr Vaughan Williams explained: (more…)