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).