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What Do NBA Referees and MBA Teachers Have in Common?

Over at Marginal Revolution, Tyler Cowen draws an intriguing parallel between accusations made by disgraced NBA ex-referee Tim Donaghy, and models of collusion.

While David Stern has denied explicit collusion between the league and the refs to influence game outcomes, Tyler argues that there may instead be implicit collusion: refs may simply perceive that the league wants them to produce certain outcomes, and the refs will deliver unless the league takes a strong contrary stand. This may explain why star players are so widely perceived to get better treatment, and it could also explain why some of Donaghy’s accusations resonate.

And while strong financial incentives often lead to better job performance, in this case they actually exacerbate the problem, as they make it even more important to the refs that they deliver the outcomes they believe their bosses want. It is an interesting and subtle argument: Read it here.

My own introspection — based on MBA teaching, rather than NBA refereeing — tells me that Tyler’s argument is quite reasonable. Officially, Wharton tells me that my job is to teach students important truths, but sometimes I fear that really my job is to entertain the students instead. You can see that my dilemma is a lot like that facing the NBA refs. And while I’m ashamed to admit it, my teaching does sometimes reflect the entertainment, rather than truth-seeking objectives.

Moreover, I acted more like this when the incentives were highest (when un-tenured) than I do today. If Ivy League profs act this way, is it so crazy to suspect that NBA refs occasionally respond to the incentive to create entertainment, even if it clashes with truth-telling?

David Stern has sought to reassure the public that all is well and that Donaghy’s accusations should be dismissed out of hand. But the fact that the league often issues blanket denials — sometimes of limited credibility — is a real problem for them here. Firms sometimes find it beneficial to deny accusations that are true (like this one), but the long run cost is that they have less credibility when denying damaging falsehoods. Unfortunately for the NBA, fans have no way of discerning the true denials from the PR cover-ups. Moreover, if Tyler is right, it isn’t enough to simply show that the NBA did not ask the refs for particular favors, they need to show that they actively (and equally) discouraged all refereeing errors. If such evidence exists, I would strongly urge Commissioner Stern to make it public.

I discussed these issues at length with ESPN’s Henry Abbott, and he wrote up our conversation for the True Hoop blog.

More generally, how should the League respond to gambling-related concerns? I’ve argued before that the problem with current U.S. gambling laws is the disjunction between our formal laws, which are among the strictest in the world, and the law-in-action: U.S. gamblers have been pushed offshore, and so, in effect are governed by the most lax gambling regulation in the world. Like Rep. Barney Frank, I believe that a well-regulated gambling sector may be better than the current Wild West approach.

Related reading: More on my approach to gambling laws in this New York Times Op-Ed, written when the scandal first broke (see Dubner’s $0.02, here); Joe Drape on how legalizing gambling may make it easier to catch bad guys; and Brian Goff at the Sports Economist expands what it means to manipulate game outcomes.

And while this post has been about how economic analysis can help us understand sports, Andrew Leigh has a nice post on how sports can help us better understand economics.

Update: The WSJ‘s “Numbers Guy”, Carl Bialik, critically assesses the claim that there have been too many 7 game playoff series, here. It’s a clever rejoinder to some sloppy headlines.