Q&A with Paul Oyer: “An Economist Goes to the Game”
Paul Oyer isn’t a commentator for ESPN, but the ɫApp economist has plenty to say about sports. As only a sports-loving economist would.
Michael Jordan? He had a great grasp of game theory and created a mixed-strategy equilibrium.
Ticket scalpers? Fans should love them. They reallocate resources and create competition in the market.
A sports stat? The annual income of NBA star Kevin Durant in 2015 represented nearly 1 percent of the total money earned by the 320,000 Black American men born in 1988.
And what’s with the dominance of South Korean women in golf? A combination of cultural factors and staggering gender inequality in the labor market.
Oyer knows these are not typical perspectives that bounce around the bleachers. But by focusing an economic lens on game play, competition, industry practices and fandom, Oyer exposes fresh insights about the wide world of sports, both on and off the field.
“Many of us love sports, so why not combine sports with learning about economics?” says Oyer, the Mary and Rankine Van Anda Entrepreneurial Professor at the ɫApp Graduate School of Business, and a senior fellow at the ɫApp Institute for Economic Policy Research (SIEPR).
In his new book, , (Yale University Press, 2022), Oyer intertwines economic principles with a medley of real-life circumstances across the sports spectrum — from player strategies and the rise of the sports betting industry to the trade-offs of whether a parent should treat their child like the next sports prodigy and whether a city should bid for the Olympics.
“Economics can help us better understand how the world works. Sometimes it helps a person identify what they should do, to understand how the markets work, or see what drives situations we find ourselves in,” he says. “Economics won’t make you a great tennis or soccer player, but it answers some of the questions that sports fans ask every day.”
Oyer, who is a Senior Associate Dean for Academic Affairs at the GSB, studies the economics of organizations, personnel practices and labor. No stranger to adding a bit of levity to academia, he is also the author of . Along with the new economics of sports book, he provides for students.
In the following interview, Oyer talks about the motivation for his latest book and snippets from the research. Watch to learn more.
Why did you write this book?
Economics is called the dismal science, and I like to think it's more fun than that. What I've learned over the years is you can see economics wherever you are — whether it's how I interact with my dog or how I shop. So the idea here was to convey that economics can be fun, and it can be explained in a setting that’s interesting and not dismal. My goal isn’t just to talk about sports; it’s to use sports to point out economics.
Give an example of how you tie economics to sports.
Fantasy sports of any sort is really economics. They're about trying to beat the market. You're trying to put together a set of assets and the analytics, weighing trade-offs, thinking carefully about the opportunity costs — all very much similar to the types of things being done at tech companies these days. The parallels between drafting a fantasy team and hiring people in the workplace are clear: In both cases you're forming a team and they're all about — though not always getting — the best bang for your buck.
What is one of your favorite parts in the book?
The story of South Korean women golfers and the fact that they dominate the sport like no one else. It doesn't make any sense intuitively because many players in Korea become great golfers without even playing on a real golf course.
Then, there’s the question of why the dominance among women versus men. The story I weave together is a combination of cultural issues and economic measures — the high savings rate, the focus on skilled training starting as a child, and the really important economic factor of the lack of opportunities in the labor market for women. It’s that confluence, as well as the concept of networks — the story of the first South Korean woman who became so dominant, which then led others to get on board.
What’s the bottom line when it comes to doping among athletes? In the book, you explain how the prisoner’s dilemma concept comes into play.
It’s not that athletes should dope. But it’s inevitable that other people will as long as they can get away with it. And as far as we know, that's not going to change for long. So I'm not telling anybody they should dope. I'm telling them you have to understand that the other person will.
How does Michael Jordan have “sound economic thinking?”
We all apply economics all the time, and we practice it a lot. The book’s beginning scenario is of Michael Jordan. Everybody in the entire world is assuming he'll take the last shot in the basketball game at the NBA Finals (in 1997) but then he dishes off to Steve Kerr to make the bucket. That's what we call a mixed-strategy equilibrium. Michael Jordan doesn't pass the ball every time. He doesn't pass the ball most of the time. But he has to pass it just enough so that opponents can't focus only on him. People create equilibrium situations like that and try them over and over again. That's true of many real-world situations in sports.
As you delved into the sports world, what surprised you?
I didn't realize there's a lot of cheating around betting in the second tier of tennis. People ranked at 600, for instance, will throw matches. And what surprised me was not so much that, but how some bookie somewhere is taking bets on this when the 600th ranked person plays a game. I was amazed there was such a betting market. At the elite level with (Roger) Federer, you don’t have to worry about cheating, but if you're ranked 600th in the world, and you barely have enough money to pay your travel bills, and somebody offers you $1,000 to throw a set, you listen.
What’s an important sports-related policy issue today?
The way the world is going, we're going to have more and more sports betting legalized. So it's a matter of finding the optimal policy on that. From an economist’s point of view, it’s about utility and happiness. People enjoy gambling, even when they lose. But there is a set of people for whom this is a problem because they don't behave rationally. It’s a bit like alcohol — when it comes to policies, how will you give the benefits to people who will enjoy it responsibly without endangering the people who have problems or addictions? We need to look at how other countries, where sports betting is more common, are ahead of us in figuring out ways to minimize damage.
And this is not going to fix everything — but my favorite idea here is there should at least be a rule that when you show advertising for anything related to sports or gambling, you should be forced to show the losers in proper proportion to the winners. Ads always show everybody in the casino winning and happy, and that's not how it works.