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Economics and tournaments

2008 March 12
by Stefan Szymanski

Last weekend Charles Knoeber, Theofanis Tsoulouhas and Tomislav Vukina of North Carolina State organized an excellent conference on the economics of tournaments and contests. The keynote speaker was Ed Lazear, presently chairman of the President’s Council of Economic Advisers and one of the founders of tournament theory. Sixty papers were presented, ten of which were explicitly about sports, and pretty much every speaker I saw mentioned sports as one of the principal applications of contest theory. For anyone interested I recommend browsing the conference webpages, At the risk of offending the presenters of some excellent papers, I thought I’d pick out two that might be of general interest.

First, Mike Maloney from Clemson presented a great paper (joint work with Bentley Coffey) comparing the performance times of horses and dogs at the racetracks. Riders, if not horses, they show, respond to incentives. One interesting piece of evidence is that the variance of times in a race for horses is much greater than for dogs (although it turns out the two species travel at similar speeds), suggesting that riders slack off when they are far behind in race. They argue that bigger prizes are also associated with higher speeds for horses, controlling for ability. In other words, it’s not just that large prizes attract better horses, the jockeys also try harder when there’s more at stake.

Second, Jennifer Brown from Berkeley, showed something similar in relation to golf. The presence of Tiger Woods in a golf tournament is similar to reducing the size of the prize, so dominant is his performance in most tournaments. You may or may not find this amazing, but exempt players (those good enough not to have to qualify) record scores that are about 1 stroke higher when Tiger plays than when he does not. Moreover, non-exempt players (who are extremely unlikely to win) are not significantly affected. The importance of this paper is that it sheds further light on whether prizes are just mechanisms for attracting the best contestants (who always try their hardest) or whether athletes rationally adjust their effort contribution in the light of incentives.

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