Beautiful Game Theory: How Soccer Can Help Economics - Hardcover

Palacios–huerta, Ignacio

Hardcover

ISBN 10: 0691144028 ISBN 13: 9780691144023

Publisher: Princeton University Press, 2014

Synopsis

A wealth of research in recent decades has seen the economic approach to human behavior extended over many areas previously considered to belong to sociology, political science, law, and other fields. Research has also shown that economics can provide insight into many aspects of sports, including soccer. Beautiful Game Theory is the first book that uses soccer to test economic theories and document novel human behavior. In this brilliant and entertaining book, Ignacio Palacios-Huerta illuminates economics through the world's most popular sport. He offers unique and often startling insights into game theory and microeconomics, covering topics such as mixed strategies, discrimination, incentives, and human preferences. He also looks at finance, experimental economics, behavioral economics, and neuroeconomics. Soccer provides rich data sets and environments that shed light on universal economic principles in interesting and useful ways. Essential reading for students, researchers, and sports enthusiasts, Beautiful Game Theory is the first book to show what soccer can do for economics.

About this title

About the Author

Ignacio Palacios-Huerta is professor of management, economics, and strategy at the London School of Economics, and head of talent identification at Athletic Club de Bilbao, a professional soccer club in Spain.

From the Back Cover

"This stimulating book shows that an understanding of economic ideas gives deep insights into soccer play, and that soccer provides important evidence to test various theories of economic behavior, such as efficient markets and social influences on behavior. You do not have to be a soccer fan to learn from and enjoy this engaging book."--Gary S. Becker, University of Chicago and Nobel Laureate in Economics

"This is an excellent book by an author who has made innovative and powerful contributions to our understanding of soccer and economics."--Stefan Szymanski, coauthor of Soccernomics

"Palacios-Huerta is perhaps the preeminent economist using sports applications to help us learn about economics."--J. James Reade, University of Reading

From the Inside Flap

"This stimulating book shows that an understanding of economic ideas gives deep insights into soccer play, and that soccer provides important evidence to test various theories of economic behavior, such as efficient markets and social influences on behavior. You do not have to be a soccer fan to learn from and enjoy this engaging book."--Gary S. Becker, University of Chicago and Nobel Laureate in Economics

"This is an excellent book by an author who has made innovative and powerful contributions to our understanding of soccer and economics."--Stefan Szymanski, coauthor ofSoccernomics

"Palacios-Huerta is perhaps the preeminent economist using sports applications to help us learn about economics."--J. James Reade, University of Reading

Excerpt. © Reprinted by permission. All rights reserved.

BEAUTIFUL GAME THEORY

How Soccer Can Help Economics

By IGNACIO PALACIOS-HUERTA

PRINCETON UNIVERSITY PRESS

Copyright © 2014 Princeton University Press
All rights reserved.

ISBN: 978-0-691-14402-3

Contents

Introduction, 1, 
FIRST HALF, 
1. Pelé Meets John von Neumann in the Penalty Area, 9, 
2. Vernon Smith Meets Messi in the Laboratory, 31, 
3. Lessons for Experimental Design, 45, 
4. Mapping Minimax in the Brain (with Antonio Olivero, Sven Bestmann, Jose Florensa Vila, and Jose Apesteguia), 58, 
5. Psychological Pressure on the Field and Elsewhere, 68, 
HALFTIME, 
6. Scoring at Halftime, 89, 
SECOND HALF, 
7. Favoritism under Social Pressure, 107, 
8. Making the Beautiful Game a Bit Less Beautiful (with Luis Garicano), 124, 
9. Fear Pitch, 151, 
10. From Argentina without Emotions, 164, 
11. Discrimination: From the Makana Football Association to Europe, 174, 
Acknowledgments, 193, 
References, 195, 
Index, 205, 

CHAPTER 1

PELÉ MEETS JOHN VON NEUMANN IN THE PENALTY AREA

I thought there was nothing worth publishing until the Minimax Theorem was proved. As far as I can see, there could be no theory of games without that theorem.

—John von Neumann 1953

Much real-world strategic interaction cannot be fully understood with current tools. To make further progress, the field needs to gain more experience in applications to the real world.

—Game Theory Society 2006

The Hungarian national soccer team of the 1950s was one of the greatest soccer teams in the history of the 20th century. It played against England at Empire Wembley Stadium on November 25, 1953, in front of 105,000 people, in what was termed "the match of the century." Hungary was the world's number one ranked team and on a run of 24 unbeaten games. England was the world's number three ranked team, and unbeaten at Wembley for 90 years against teams from outside the British Isles. In what was then considered a shocking result, Hungary beat England 6–3.

As a preparation for the 1954 World Cup in Switzerland, on May 23, 1954, England visited Budapest in the hope of avenging the 6–3 defeat. Instead, Hungary gave another master class, beating England 7–1. This score still ranks as England's worst defeat.

In those years, soccer was already the world's most popular sport, and Hungary was the best soccer team in the world—often considered one of the four or five best teams in history. As Olympic champion in 1952, not surprisingly, Hungary was the favorite to win the upcoming World Cup. Consistent with these expectations, Hungary easily beat Korea 9–0 and West Germany 8–3 in the first round. Then, it beat Brazil 4–2 in the quarterfinals and Uruguay, which had never been beaten in World Cup games, 4–2 in the semifinals. Its opponent in the final was West Germany, which surprisingly had managed to win all of its games after its initial defeat in the first round to Hungary. In the Wankdorf Stadium in Bern, 60,000 people saw Germany beat Hungary 3–2 in what was called "the Miracle of Bern." The sports announcer shouted in the background of the final scene of Rainer Werner Fassbinder's film The Marriage of Maria Braun, featuring this event, "Deutschland ist wieder was!" (Germany is something again!). This victory represented a powerful symbol of Germany's recovery from the ravages of the Second World War.

It is probably safe to assume that there were few Hungarians in the world in the 1950s who were not proudly aware of the accomplishments of their national team in the world's most popular sport. Indeed, Neumann Janos, born on December 28, 1903, in Budapest, a superb scientist who had migrated to the United States and was then known as John von Neumann, could not have been completely ignorant of the team's success.

John von Neumann is considered a scientific genius of the 20th century. A brilliant mathematician and physicist, he left a profound mark, with fundamental contributions in theoretical physics, applied physics, decision theory, meteorology, biology, economics, and nuclear deterrence; he became, more than any other individual, the creator of the modern digital computer.

"He was a genius, the fastest mind I have ever encountered.... He darted briefly into our domain, and it has never been the same since." Paul Samuelson (Nobel laureate in Economics, 1970, quoted in Macrae 1992) is referring here to the three fundamental contributions von Neumann made in economics: first, his 1928 paper "Zur Theorie der Gesellschaftsspiele," published in Mathematische Annalen, which established von Neumann as the father of game theory; second, his 1937 paper "A Model of General Equilibrium" (translated and published in 1945–46 in the Review of Economic Studies); and third, his classic book Theory of Games and Economic Behavior, coauthored with Oskar Morgenstern in 1944 (Macrae 1992).

As a mathematician, von Neumann's own philosophical views induced him to choose to work in a variety of fields, and his selection of research questions and the resulting measure of his success were largely influenced by aesthetic values (von Neumann 1947). However, he also warned that mathematics loses much of its creative drive when too far removed from empirical sources. And yet, despite the place in the world of soccer that Hungary occupied, and despite soccer's place as the world's most popular game, everything indicates that he was not particularly interested in sports as an empirical source, or in the empirical verification of game theory theorems with sports data or with any data:

The truth is that, to the best of my knowledge, my father had absolutely no interest in soccer or any other team sport, even as a spectator or news-follower. Ironically, he wasn't much on games in general (though he loved children's toys, which he could often persuade to yield up some principle of mathematics or physics); but his game-playing didn't go much beyond an occasional game of Chinese checkers at my request. I don't believe he even played poker.

Warmest regards, Marina von Neumann Whitman (Private email correspondence, October 13, 2010)

As Kreps (1991) notes, "the point of game theory is to help economists understand and predict what will happen in economic, social and political contexts." But if von Neumann considered, as the initial quotation suggests, that there could be no theory of games without proving the minimax theorem, then it seems appropriate to think that he would have considered that there could be no empirical applicability of the theory of games without first having verified empirically that theorem. As noted below, the minimax theorem was not empirically verified until 2003.

The empirical verification of strategic models of behavior is often difficult and problematic. In fact, testing the implications of any game theoretical model in a real-life setting has proven extremely difficult in the economics literature for a number of reasons. The primary reason is that many predictions often hinge on properties of the utility functions and the values of the rewards used. Furthermore, even when predictions are invariant over classes of preferences, data on rewards are seldom available in natural settings. Moreover, there is often great difficulty in determining the actual strategies available to the individuals involved, as well as in measuring these individuals' choices, effort levels, and the incentive structures they face. As a result, even the most fundamental predictions of game-theoretical models have not yet been supported empirically in real situations.

Von Neumann published the minimax theorem in his 1928 article "Zur Theorie der Gesellschaftsspiele." The theorem essentially says,

For every two-person, zero-sum game with finitely many strategies, there exists a value V and a mixed strategy for each player, such that:

(a) Given player 2's strategy, the best payoff possible for player 1 is V, and

(b) Given player 1's strategy, the best payoff possible for player 2 is -V.

Equivalently, Player 1's strategy guarantees him a payoff of V regardless of Player 2's strategy, and similarly Player 2 can guarantee himself a payoff of -V.

A mixed strategy is a strategy consisting of possible moves and a probability distribution (collection of weights) that corresponds to how frequently each move is to be played. Interestingly, there are a number of interpretations of mixed strategy equilibrium, and economists often disagree as to which one is the most appropriate. See, for example, the interesting discussion in the classic graduate textbook by Martin Osborne and Ariel Rubinstein, A Course on Game Theory (1994, Section 3.2).

A game is called zero-sum or, more generally, constant-sum, if the two players' payoffs always sum to a constant, the idea being that the payoff of one player is always exactly the negative of that of the other player. The name "minimax" arises because each player minimizes the maximum payoff possible for the other. Since the game is zero-sum, he or she also minimizes his or her own maximum loss (i.e., maximizes his or her minimum payoff).

Most games or strategic situations in reality involve a mixture of conflict and common interest. Sometimes everyone wins, such as when players engage in voluntary trade for mutual benefit. In other situations, everyone can lose, as the well-known prisoner's dilemma situations illustrate. Thus, the case of pure conflict (or zero-sum or constant-sum or strictly competitive) games represents the extreme case of conflict situations that involve no common interest. As such, and as Aumann (1987) puts it, zero-sum games are a "vital cornerstone of game theory." It is not a surprise that they were the first to be studied theoretically.

The minimax theorem can be regarded as a special case of the more general theory of Nash (1950, 1951). It applies only to two-person, zero-sum or constant-sum games, whereas the Nash equilibrium concept can be used with any number of players and any mixture of conflict and common interest in the game.

Before undertaking a formal analysis, let us take a brief detour and look at the following play in soccer: a penalty kick. A penalty kick is awarded against a team that commits one of the 10 punishable offenses inside its own penalty area while the ball is in play. The world governing body of soccer, the Fédération Internationale de Football Association (FIFA), describes the simple rules that govern this play in the official Laws of the Game (FIFA 2012). First, the position of the ball and the players are determined as follows:

• "The ball is placed on the penalty mark in the penalty area.

• The player taking the penalty kick is properly identified.

• The defending goalkeeper remains on the goal line, facing the kicker, between the goalposts, until the ball has been kicked.

• The players other than the kicker are located inside the field of play, outside the penalty area, behind the penalty mark, and at least 10 yards (9.15 meters) from the penalty mark."

Then,

• "The player taking the penalty kicks the ball forward.

• He does not play the ball a second time until it has touched another player.

• A goal may be scored directly from a penalty kick."

The credit of inventing this play belongs to William McCrum. McCrum was a wealthy linen manufacturer, raconteur, cricketer, and the goalkeeper of Milford Everton, a small club in County Armagh, which played the inaugural season of the Irish Championship in 1890–91. History does not fully record how good a keeper he was, but he was certainly kept busy during that first Irish League season. Milford Everton finished at the bottom of the league with no points, a record of 10 goals scored, and 62 conceded, and the team was promptly relegated. McCrum may not have been one of the world's greatest goalkeepers, but he was a gentleman and justly proud of his reputation for good sportsmanship. His obituary in 1932 paints a picture of a man of honor who was frustrated and angry at the "win-at-all-costs" attitude that was poisoning his beloved soccer (Miller 1998).

McCrum believed that anyone who failed to abide by the spirit of the game should face a sanction that would punish not just the individual offender but also the whole team. Holding an influential position in the Irish Football Association, he submitted his proposal for a "penalty kick" to the association in 1890. Jack Reid, general secretary of the association, then formally forwarded McCrum's proposal to the international board for consideration at the board meeting to be held on June 2, 1890, and, he hoped, its subsequent incorporation into the laws. It immediately ran into a storm of protest. The reception was ferocious. Press, administrators, and players publicly derided the idea. Some commentators even nicknamed the proposal the "death penalty," implying that it would be the death of the game as they knew it. Many people did not want to introduce a rule that effectively conceded that teams and players often resorted to unsporting methods. It was in this atmosphere that the Irish Football Association decided to withdraw the proposal. The international board, however, agreed to discuss the issue at the next meeting one year later. On June 2, 1891, somewhat surprisingly, the atmosphere was quite different and the proposal passed unanimously.

The penalty kick was born, albeit not in the form that we know it today. The new law came into force immediately, and, to be fair, it was not a huge success. There were obvious flaws in the first draft, and players—particularly goalkeepers—were quick to take advantage. Furthermore, gentlemen did not commit fouls. It took almost 40 years, until 1929, before the penalty law finally became what William McCrum intended it to be—an effective punishment for foul play. He lived to see his idea reach fruition but then died, a year later, after a long illness. (Trivia alert: On September 14, 1891, the Wolverhampton Wanderers were awarded the first penalty kick in a football league in a game against Accrington Stanley. The penalty was taken and scored by "Billy" Heath as the Wolves went on to win the game 5–0.)

McCrum's legacy is enormous, considering the worldwide importance of soccer today and the significance of the penalty kick within the game. He would have, no doubt, been proud to see how central his idea became to the overall development of the game. However, not even in his wildest dreams could he have anticipated that his penalty kick could also provide the data necessary to verify for the first time a mathematical theorem that was fundamental in economics: the minimax theorem. This is the objective of this chapter.

(Continues...)

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Edition details

• Publisher: Princeton University Press
• Publication date: 2014
• Language: English
• ISBN 10: 0691144028
• ISBN 13: 9780691144023
• Binding: Hardcover
• Number of pages: 224