Regular readers of this blog will know that I enjoy blogging about research that uses a sports setting to illustrate economic concepts (except when the research is terrible). Sport makes for an interesting setting for testing economic theories. The rules are known. The incentives are usually clear. The outcomes are usually unambiguous. Other real-world settings don't provide the same clarity. This matters because sports can tell us something about real-world behaviour that lab experiments can’t. And essentially, that is one of the points that Ignacio Palacios-Huerta (London School of Economics) makes in this new review of the literature, published in the Journal of Economic Literature (ungated earlier version here).
As a researcher, Palacios-Huerta has frequently exploited sports data (and has a book using data from football, Beautiful Game Theory, which makes some of the same points as this review, but with a narrower focus on football, or soccer). In this review, Palacios-Huerta argues that:
...many sports settings are in fact natural experiments that “happen to occur” and provide evidence that is as direct and convincing as controlled experiments... And yet other settings offer such a clean environment for identification that they seem designed as a perfect vacuum for measuring theoretical postulates. The precise knowledge of participants’ goals and rules and the clear observability of strategies, incentives, actions, and consequences in these settings is indeed rare in other field settings.
Mainstream economics mostly ignores sports as a source of data and a test of theories. Palacios-Huerta notes that this is limiting scientific progress in economics:
A reluctance to view sports settings from this perspective may reflect a deep misunderstanding of the virtues of sports data. And this reluctance has discouraged the study of these settings and slowed down the production of knowledge in economics and other social sciences.
The review then provides a wide review of specific examples where sports data has informed tests of economic theories. The range of theories is too broad to note in full here, but encompasses things like game theory, risk and uncertainty, behavioural economics, market design, labour economics, discrimination, technological change, and lots of examples of the roles of incentives. The variety of sports that provide the data is also vast, including football (of all kinds), golf, chess, basketball, baseball, motor racing, and even biathlon and gymnastics. Surprisingly, there is no mention of cycling, athletics, or swimming. My only disappointment is that Palacios-Huerta doesn't draw on e-sports (although they do make an appearance in the appendix to the paper). He could also have given a nod to game shows, which provide similar benefits to sports (and are also a favourite topic for me to blog about).
If you're looking for data to test a particular theory, sports might help. But sports can offer more than just data: they can generate new insights into theory itself. As Palacios-Huerta notes in the conclusion to the review:
...sports settings offer more than unparalleled opportunities for measurement, verification, and falsification; they are unique from the perspective of a key component of science that is largely ignored: discovery... Ironically, one of the main benefits of the excessive highbrowism that sports have endured is that they remain an important and largely unexplored setting for discovering new phenomena and hypotheses.
The opportunities that sports offers for economists are broad, and sports data are underutilised. And, economics research that uses sports as a setting can have broader appeal as well. Hopefully, economists are listening.
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