Superbowl Wrap-Up: A Guest Post

A fun game to watch yesterday, with the Giants winning 17-14 over the Pats. More to the point, a clear victory for Steve Levitt, whose advice to punters was to take the “under.” A total of 31 points were scored, well below the 54.5 point “line” in Vegas. Congrats to all who followed Steve’s Freako-tip.

Ian Ayres‘ successful tip was also based on economics. He said he would “bet on the Giants to hedge my disappointment if the Pats lose.” Ayres’ response is a fairly standard one among economists — we always talk about the benefits of diversification. But it is worth digging a bit further into the underlying theory here. The advice to diversify is based upon the usual equi-marginal rule — if you find yourself with a higher marginal utility in one state of nature than the other, you want to keep transferring wealth until this “utility arbitrage” disappears. And this is what Ian was doing by betting on the Giants instead of the Pats. He was cheering for the Pats, but thought he would have a high marginal utility if the Giants won, and thus wanted to be wealthier if that occurred.

But here’s a deeper question: would his marginal utility (of money) have been higher or lower if the Pats had won? I think Ian got it backwards. My (idiosyncratic) view is that everything in life is a little sweeter when mixed with success. And so the (marginal) joy I get out of everything tends to be higher if my team has recently won ?– I might want to buy the “victory” cap, or the T-shirt, and would really enjoy having a few extra dollars for a celebratory beer. If so, then the economist’s advice should be to bet on the team you love, rather than diversifying, as per Ian’s advice. All Ian did was transfer extra money into the state of nature in which he was feeling morose.

And the winner of the Freako-schwag? I’m afraid that none of our blog readers correctly picked the score (well, except for a late tip that arrived at 10:12pm). Jeremy (who tipped Pats 14-10) looked good for a while, but this one got away from him, as well as the Pats, at the end. But our blog readers must be an unusual group, because the most popular pick in the Times forecasting challenge, was “New York by 1-3″ (chosen by 23.1 percent of people).

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  1. B K Ray says:

    Before the game was played, I thought that the Giants were in a better position to win, if for no other reason than the higher a streak goes, the higher the chances that it will end and 19 was a pretty hard streak to maintain in a 20 game season. This combined with the fact that the Giants had successfully upset every team they played in the playoffs.

    Of course I do not like the Pats and seriously hoped they would lose weekly, but it was not like I love the Giants. But I do like them more today.

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  2. mgroves says:

    “the higher a streak goes, the higher the chances that it will end”

    I’m not sure I buy that assertion. Otherwise, we’d all be incredibly wealthy from buying all those losing lottery tickets.

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  3. Paul Clapham says:

    “…the higher a streak goes, the higher the chances that it will end…”

    This is a well-known probability fallacy, isn’t it? The Gambler’s Fallacy, if my googling has it right.

    http://www.nizkor.org/features/fallacies/gamblers-fallacy.html

    However I suppose it’s possible that human psychology might cause the statement to be true in this context. Any budding freakonomist want to have a go at that study?

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  4. liberalarts says:

    To clarify, I think that Ian’s hedge was based on smoothing of total utility, rather than being based on the marginal utility of the winnings. The idea is that he would be disappointed but then richer if the Giants won and happier but then poorer if the Pats won. If he bet on the pats, he would have gained sports and money utility if they won and lost sports and money utility if they lost. So, he thus smoothed his expected outcomes by betting on and cheering for different teams.

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  5. Jared says:

    For the record, Ian does not suggest what would be an ideal situation for him: betting on the Giants to cover the spread, but still hoping for a slim Pats victory — had the Pats won 14-10, he would have been able to spread his total utility while gaining maximum marginal utility in both monetary and personal terms.

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  6. Scott Supak says:

    Yes, the gambler’s fallacy. I flip heads 100 times, the next flip is still 50%. Past performance is no indication of the future coin toss.

    On the lighter side, my Grandpa was happy. He played for the Giants in the 50′s, when, as he put it, when they were done, they folded up their helmets, put them in their back pocket, and rode the subway home.

    His best football joke is here.

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  7. Andy says:

    I’ll play a bit of the devil’s advocate role here and say that B K Ray does have a point. The Gambler’s Fallacy is definitely a problem for coin flips, but this streak involves a lot of people and human nature could play into the likelihood of keeping a streak going. Is there overconfidence or feelings of invincibility? Do they think about how horrible it would be to lose and have to hear the ’72 Dolphins gloat?

    If a person were a 90% free throw shooter, and had a streak of 10 going, I would be more likely to bet on success of the next shot than if they had 100 in a row and were one away from setting the school record. Of course, I am a gambler, so maybe I’m full of it.

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  8. Shan says:

    I think the Times Forecasting challenge is more of the odd group than the readers of this blog. Odds are that the readership of the New York Times is wider in New York than in other parts of the country. I’d expect a New Yorker to be more optimistic about the Giants’ fate than an average American.

    Here in Missouri, everybody was expecting the Patriots to win (although plenty of us were hoping for the Giants to win). I made a small bet with a friend where I would get a 2:1 payout if the Giants won, and I actually thought that I was getting the shorter end of the stick.

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