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Some Behavioural Insights to Mega Football Transfers

1/8/2016

 
By David Butler

The transfer of Paul Pobga to Manchester United for an apparent fee of £100 million (€118 million) has been making the headlines over the last few weeks. If it goes ahead it will be another watershed for football – the first £100 million pound player.
​
It has taken 37 seven years to go from the Trevor Francis £1 million move to Nottingham Forest to today’s £100 million figure (although I think technically the Francis move was worth £1.18m). I'm sure the theme of conversations in 1979 was the same as today - 'the game has gone nuts!'. By most accounts Francis didn't live up to the fee, suffering from a recurring injury during his time at Nottingham Forest.

Reading about Manchester United’s impending decision to part with the £100 million reminded me of a nice summary Richard Thaler has in his recent book Misbehaving of findings from the psychology of decision making that supports the idea that early picks in the NFL draft will be overvalued. The general ideas are more or less applicable to high end deals in football where transferred players fail to deliver relative to expectations. Here are four.

People are overconfident in their ability to distinguish between talent. To justify a £100 million fee a player should be extremely talented. Of course, objectively and accurately measuring talent, let alone potential, is very challenging. The stats do show that Pogba generally scores well, but perhaps not well enough to be worthy of the staggering fee. WhoScored.com ranks Pogba tenth in the list of player statistics behind the likes of Riyad Mahrez,  Henrikh Mkhitaryan and Angel Di Maria. The FIFA index, which adopts a 'wisdom of crowds' approach to measuring ability, has Pogba 23rd on their list. He holds the same rating as players such as Kevin De Bruyne, Sergio Busquets and Alexis Sanchez.

People make extreme forecasts. Elite players are statistical outliers. The problem is that those chasing the talent can overestimate the ability of ‘star’ performers. Scouts are perhaps too quick to define elite talent. Players like Cristiano Ronaldo and Gareth Bale are extremely rare. Is Pogba in the same bracket as these players who sold for £80m and £85m respectively not so long ago? Naive optimism can be a powerful force. 

Selective Acceptance. There is information embedded in Juventus agreeing to part company with Pogba for this fee. The act of acceptance should provide Manchester United some insights. Naturally, the Old Lady think that Pogba is worth £100m or less. A literature in economics now exists to show that people can overbid in two-party trades, suffering from the winner's curse. A quick glance at the increasingly accurate Transfermarkt.com, suggests that Manchester United would be overpaying by approximately £30m. 

People tend to believe that others think just like them. This is usually labelled the false consensus effect. In a simple sense, when a club nail their colours to the mast and publicly identify their target, it may be the case they think all other clubs share their views. Fearful of competitors, they may be more likely to give into a selling clubs demands. Although betting on the Pogba-Manchester United move is now closed, the threat of Real Madrid entering the race for Pogba's signature (whether realistic or not) may have inflated the fee.   

Jürgen Klopp – Behavioural Economist?

5/5/2016

 
By David Butler,

Last week a photo broke online that showed Jürgen Klopp’s office shelf. In addition to golden gnomes, a squad photo, a dictionary and a beer, Klopp has a copy of Daniel Kahneman’s ‘Thinking, Fast and Slow’. Beside this appears to be a copy of ‘Risk Savvy: How to Make Good Decisions’ by Gerd Gigerenzer. Klopp’s choices are interesting. Economics/Psychology books take pride of place over perhaps more traditional Strategy, Leadership and Management books.
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One key cognitive bias Kahneman outlines in his book is the planning fallacy. This is our propensity to overestimate the benefits of a project and underestimate its costs. This bias can lead to us naively taking on risky projects. I wonder did Klopp read Thinking, Fast and Slow’ before or after joining Liverpool?

Is Football a Predictive Science? It Seems Not.

4/6/2015

 
By David Butler

For 2014-2015 English Premier League season I followed the predictions of soccer pundits. The judgements of
Paul Merson, Steve McManaman, Michael Owen, Robbie Savage and Darren Fletcher have all been put under the spotlight.  John Eakins has also provided the data on Mark Lawrenson's predictions.  We now have a sizeable dataset on Sky Sports, BT and BBC soccer experts who systematically predict.

Below is a graph that shows the success of each pundit in percentage terms.  While the sample size is lower for the BT experts, a common pattern still emerges – the pundits called approximately half of the matches (in)correctly - depending on your philosophical perspective! They predict the correct score line roughly 10% of the time.

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Paul Merson & Predictions: Final Update

25/5/2015

 
By David Butler

On the 28th of August I began recording Sky Sports Pundit and ex-Premier League Footballer Paul Merson’s predictions for EPL fixtures. These predictions are usually published by Sky Sports the day before EPL matches. The first five entries that followed his predictions can be found here, here, here, here and here.


So how did the 'Magic Man' fare this season?  

Merse predicted the outcome of 379 fixtures*. He successfully predicted the right result 155 times, the correct score 38 times and has been incorrect on 186 occasions. As per the past entries, Merson's predictions are compared to the output of a random number generator and can be seen below.

Also included is Merson's Premier League Table which represents what the 2014-2015 EPL would look in light of his estimations. Merse rightly predicted Chelsea to be champions, got three out of four Champions League teams correct and suggested Burnley would be relegated.

He does however overestimate the performance of high performing teams and underestimate the weaker ones. I've written about the psychology behind this in previous entries.

For Merson, Arsenal and Tottenham are interesting cases. The results will not be unsurprising for fans. Merson thought that Arsenal would be 2nd and overestimated his former club's total by 14 points. In contrast, he thought that Tottenham would be 11th and underestimated the North London club's total by 17 points. 
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Randomness - Final Update
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Paul's Pie Chart - Final Update
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*There was no observation for one fixture – given that this was Arsenal at home to Sunderland, an Arsenal win was assumed for the purposes of the league table. The score line of 3-0 was predicted by Merson's Sky Sports News colleague Charlie Nicholas.

Swapping & Prospect Theory

29/4/2015

 
By David Butler

Just under a year ago I spoke about children trading soccer stickers in the
playground. This struck a chord with some students and since then I've been asked about collecting and swapping stickers – I think it’s the case that just like playing sport, nearly everyone has experience being a  collector of some sort.  The Economist newspaper recently put the Economics of the Playground more persuasively than I could, when they said that, “for evidence that the inclination to barter and truck is in our genes, one need venture no farther than the nearest schoolyard. Lurking within school walls is a thriving economy...”

Rather than just chatting about these ideas and the fun of collecting, I try to teach my students some Behavioural Economics too. I usually advise them to check out John List’s now quite famous 2003 and 2004 papers -
Does Market Experience Eliminate Market Anomalies? and Neoclassical Theory versus Prospect Theory: Evidence from the Marketplace.

List, who is well known in economics for carrying out cool field experiments, connected the idea of sports card trading with concepts from Behavioural Economics by going on the road and visiting a trade show.  His intention was to explore the idea of Reference Dependence and test for the Endowment Effect.  This is the tendency for people to place a higher value on goods they own. The key question of these studies was whether this Endowment Effect, that shows up in the laboratory, existed in the field or ‘real world’ - was it the case that people were just loss averse in the lab, but that this behaviour would wash in the marketplace?

At the trade show List got two groups of participants, all of whom naturally had different experience levels trading sports cards. He randomly assigned sports memorabilia to both groups for filling in a questionnaire. In this form participants were asked how much practice they had trading cards – if you traded more than 6 times a month you were considered experienced. The first group got a ticket stub for the Kansas City Royals and the second group got a commemorative cert for the Milwaukee Beavers. List must have deemed these to be of equal value to sports enthusiasts. Participants were then offered the opportunity to trade. Standard economic theory would predict that 50% of the memorabilia would be traded.

The results were interesting – participants who didn't have much trading experience traded very little (only 6.8% of the time).  List compared these results to the predictions of the standard economic model and suggested that it was evidence of the Endowment Effect in a natural setting. What about those participants that were considered experienced?  These participants traded a lot more (46.7% of the time). This was not down to the indifference of inexperienced subjects. As a separate experiment showed, this group also wanted a lot more money to give up their endowed memorabilia than the experienced group.

But there was a causality issue however - was it the case that experience was causing participants not to exhibit the Endowment Effect or was it that people who lack the Endowment Effect are more likely to trade? Also, maybe novices where just scared of being ripped off?  List had to control for experience over time. To do this he returned to the trade show a year later and actually managed to catch up with many of the same participants. Again, he asked them how much they traded. Curiously, he found that as traders got more experienced the Endowment Effect decreased, supporting the idea that experience made traders savvier and that the market can wash out this effect. In his later 2004 paper, List showed that this trading experience can actually spill over as collectors that are more experienced in card trading are also less likely to exhibit the Endowment Effect when it comes to other goods.   

While not doubting that adults and children think differently, maybe if we want school kids to be savvy in the market place it’s a good idea to give them lots of time to swap and trade.The playground definitely offers children an early place to engage in exchange where some shadow pricing system usually exists. Maybe kids might learn more economics at lunch time than in class and perhaps become a little bit more rational along the way too!

The Rise of Instant Gratification Sport - Part II

28/3/2015

 
By David Butler

In February I spoke about the rise
instant gratification sport in light of the development of Fast4 Tennis. The shorter sport models seem to appeal to fans who require a greater degree of certainty regarding when an outcome of a contest will be known (more so children?) and really doesn't require a sports fan to put up with delaying their gratification for a result. How individuals evaluate sooner (smaller) rewards and larger (later) rewards is key to studying intertemporal choice or choice over time in Economics.

At the end of the entry I thought about the development of ‘speed baseball’. Last week I came across an article online (available
here) that informed me that Major League Baseball is set to experiment rule modifications in an independent league for the 2015 season. The new rules are not specifically targeted toward shortening games, instead they are aimed at reducing down time. The commercial breaks are coming on the clock and an experiment will be conducted with three-ball walks and two-strike foul outs. For me, a roundabout way of reducing game length. The BBC recently cited the falling participation numbers in Tennis as a key reason in developing the new rules for Fast4 Tennis. It seems that baseball is now also turning to the clock to try and improve the sport.

Can you still call this baseball? Maybe not. Is putting sport on the clock the only solution to alleged popularity crises? Maybe not either.

Paul Merson & Predictions: Update 4

19/3/2015

 
By David Butler

[The final entry on this post can be accessed here]

On the 28th of August I began recording Sky Sports Pundit and ex-Premier League Footballer Paul Merson’s predictions for EPL fixtures. These predictions are usually published by Sky Sports the day before EPL matches.
The first four entries that followed his predictions can be found here, here, here and here. Given that Paul will make 380 predictions over the course of the Premier League season (289/380 to date), we have a rare opportunity to analyse the accuracy of a football pundit and Sky Sports football expert who systematically predicts.

Merse has now predicted the outcome of 289 fixtures and only has 9 gameweeks left. He has successfully predicted the right result 117 times, the right score line 27 times and has been incorrect on 145 occasions. As per the past entries Merson's predictions are compared to the output of a random number generator. Since the last update, the results have stayed mostly the same. Merse is again approximately 15% ahead of randomness.

Also included below is Merson's updated Premier League Table which represents what the EPL would look in light of his estimations. Merson has successfully predicted the standing of the first two teams but has overestimated how many points Chelsea, Man City, Liverpool and Arsenal would have collected by this stage. 

Even though he has predicted half of the outcomes incorrectly he still gets the top five correct  (although the order is wrong).
In terms of the Champions League race, the table would suggest that Merson thinks Liverpool and Arsenal will be 3rd and 4th respectively. Currently, Manchester United are 4th.  Merson underestimates the performance of Tottenham and Southampton, suggesting that they would have 9 and 16 less points accumulated respectively. Finally in regards to relegation Merson has one of the three teams in the relegation zone correct – Burnley. They are currently 18th in reality and also from Merson’s estimates. He has underestimated the performance of West Brom.  

Although it may appear Merse isn't performing too well,  as I showed recently, he is ahead of the BT pundits when it comes to predicting correct outcomes and his table still looks reasonably accurate.

As John Eakins has previously discussed and I introduced some weeks back,  we think the predictions of pundits can be explained through the lens of behavioural economics. Basically pundits  suggest results that are quite easy to imagine. There is plenty of theoretical work on nonadditive subjective probabilities and our hunch is that these pundits may fall foul to an 'imaginability' bias - in short this goes that imagining an event may cause one to hold an increased subjective probability of it happening. We have a hunch that outcomes that are easier to imagine will be judged as more likely. How many of us go into Paddy Powers to back a 0-0 draw?!

We are also currently asking whether the market believes in this?  A issue similar to this has been addressed before in sport. In 1989 Colin Camerer asked whether the basketball market believed in the 'hot hand'. By examining whether perceived hot streaks by fans affected the point spreads in betting markets, Camerer's study found that bets on teams on 'winning streaks' were more unsuccessful while teams on 'losing streaks' tended to over perform. As Camerer notes mistaken beliefs in the market such as the hot hand raise important economic questions as there presence may make the allocation of resources sub-optimal. 

I will provide two more updates on this entry - before and after the final fixtures of the season. At the end of the season I will look at the Merson's goal distribution as John Eakins did here
for Mark Lawrenson and I will give an update in regards to the findings from our paper where we are looking at whether pundits succumb to this bias. 
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Paul's Pie Chart - Update 4 (289/380)
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Randomness - Update 4 (289/380)
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Latest Ireland U-19 & U-21 Squads - Relative Age

18/3/2015

 
By David Butler

Last Wednesday Noel King, Head Coach of the Irish U-21 international team, announced his squad for the first fixture of 2017 UEFA European Under-21 Championship qualifiers.  Ireland U-21's will take on Andorra on the 26th of March in the Regional Sports Centre in Waterford.  The squad is available here. Paul Doolin, Head Coach of the Irish U-19 international team also announced his squad for the forthcoming UEFA U19 Championships Elite Qualifying Round. The U-19's will take on Czech Republic and Slovakia in Germany later this month. This squad is available here.

Over the past years, I have conducted research on Relative Age Effects in Irish soccer.  A Relative Age Effect in sport occurs when there is a selection bias towards those born earlier in a registration period. Due to physical, psychological and social advantages older children in a cohort are more likely to be identified as talented, with the upshot being a skewed birth distribution of elite performers in youth sports.

In the case of soccer, as is with many other sports, a higher proportion of children born in the first quarter of the calendar year represent their country at an elite level - for the duration of their time as a youth player they compete against relatively younger children, benefitting from early maturation.

Below is the distribution of date of births for our latest U-19 and U-21 squads.  Q1 refers to January to March Births, Q2 from April to June and so on.  For both squads most of the selected players are born from January to March. 5 of the U-21 players are born in January (approx. 30% of the squad). Two thirds of the U-21 squad are born in the first half of the calendar year. Relative age issues do however seem to be less prevalent in the U-19 squad.

Food for thought for those watching on in Waterford later this month.   

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'Merse' vs. 'Fletch and Sav'

4/3/2015

 
By David Butler

On the 28th of August I began recording Sky Sports Pundit and ex-Premier League Footballer Paul Merson’s predictions for English Premier League fixtures.

Merse is not however the only soccer pundit  on T.V that predicts. At the weekend a friend introduced me to the 'Fletch and Sav' Matchday Live on BT sport. The hosts, Darren Fletcher and Robbie Savage, make regular predictions on English Premier League fixtures. They are joined by Michael Owen and Steve McManaman. I'm led to believe that these pundits do not predict every round of fixtures, unlike Merse.

Three of the four BT soccer pundits are ex-Premier League footballers too and taken together Merse, Owen, Macca and Sav have accumulated 186 senior international caps. They are pretty experienced to say the least and despite my affections for Tottenham Hotspur, I have many childhood memories of all four being top Premier League footballers, Michael Owen being the most obvious candidate. 

I managed to get access to 76 predictions for this season for Fletch, Sav, Macca and Owen. These were all for the same matches. I then compared the predictions of the BT pundits to that of Sky Sport's Paul Merson for those matches.  

In terms of predicting the outcome for the 76 matches Merse comes out on top. He outperforms all four BT predictors who get more match outcomes wrong then right. He is followed by Owen, McManaman and Savage (joint third) and finally Fletcher. Steve McManaman is best at picking the notoriously difficult 'correct scoreline'.

As a colleague mentioned to me earlier, I think its time the Economists take on the pundits - roll on Premier League 15/16'!


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BT vs Sky

The Winners Curse in Sport

24/2/2015

 
By David Butler

The winner's curse is the tendency for individuals to overbid in common value auctions when information between buyers and sellers is not complete. If you are bidding in an auction with many others for an asset that you don’t know the value of, a winning bid can be overly optimistic and it can exceed the intrinsic value of the asset purchased. Simply put, if you win an auction when you don't really know what something is worth, there’s a chance you’ll be had! This curse has been shown to even affect experienced bidders.

This curse was originally conceptualized in light of auctions for oil reserves in the Mexican Gulf and famous experiments by William Samuelson and Max Bazerman during the 1980’s showed how buyers in the lab consistently fail to appreciate their information disadvantage when formulating a bid in bargaining games. When the best strategy to take is to opt out, the temptation to bid is too much for some. 

Economists have since looked to sport as a means to test for the winner's curse in the field. The big advantage of sport is that it provides scope for productivity evaluations that other auctions do not. We can tell how well an asset has performed after they are purchased, in this case a sports star.  

In particular, economists have looked toward baseball. The original study on the topic was by James Cassing and Richard Douglas. In 1980 the researchers analysed the bidding strategies of potential buyers of free agents in Major League Baseball, as naturally each franchise would place a different value on what a free agent is worth. The researchers found that from 1975 to 1980 free agents were overpaid relative to their productivity. A second study that cited the winner's curse was written in 1993 by Lawrence Kahn. While his research did not specifically set out to address the curse, Kahn ended up explaining his results in light of it. His study looked at salary and contract length for virtually all Major League Baseball players from 1987 to 1990. The winner's curse or 'super competitive' bidding was found again.  The most recent study comes from 2008 by John Burger and Stephen Walters who revise downward the strength of Cassing and Douglas’ (1980) original findings. Using superior measures of productivity to gauge player performance, they argue that there was positive returns to free agency over the late 1970’s and also the 1990’s. They suggest a ‘weak-form’ version of the winner's curse exists as the full expectations of buyers may still not be met.  

More information is often suggested as a solution to this curse but given that status and buying superstars for commercial purposes seems to be important across sports, it may always be the case that owners are not particularly concerned about efficiency or rational bids. Bounded rationality with a boosted ego may do just fine!
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