More or Less: Behind the Stats What can economics learn from sport?
Nov 2, 2024
Ignacio Palacios-Huerta, a Professor of Economics at the London School of Economics, explores how sports illustrate economic theories. He discusses loss aversion using golf as an example, demonstrating how psychological factors can influence decision-making. Delving into discrimination in baseball, he highlights the benefits of inclusive hiring practices. Ignacio also examines the psychology behind penalty kicks, revealing how randomness and player tendencies shape outcomes. This intersection of sports and economics provides a unique lens on competitive behavior.
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Sports Economics
- Economists typically study human behavior in financial markets or labor markets.
- However, sports offer a unique perspective, turning the lens to what sports can teach economics.
Loss Aversion in Golf
- Golf provides a clear example of loss aversion: Players are more careful when putting for par (avoiding loss) than for birdie (seeking gain).
- This demonstrates Kahneman's theory of reference dependence, where golfers prioritize avoiding bogeys over making birdies.
Discrimination in Baseball
- After WWII, the MLB lifted restrictions on black players.
- Successful teams quickly acquired this untapped talent, confirming Becker's theory that discrimination acts like a tax in competitive markets.