Question for the Theorists

all the hoopla

Where would you like to see your favorite piece of Economic Theory in, say, 50 years time? If you're into the General Equilibrium thing what kind of progress do you think needs to be made? If you're a Game Theory fool, what else can be said? Where is DSGE going to go that doesn't involve just another tweak of parameters/assumptions that we all only half heartedly believe in? I'm not asking for specific theorems (or applications)... well, maybe for conjectures. More along the lines of a road map. Not quite like Hilbert's program because I'm sure we all can agree that would be asking too much at this point. But a goal. What would an ideal economic methodology look like? At least in a specialized kind of way, within your favorite approach?

Ok, ok, it is possible that there may be some who think that their preferred method, whatever it is, already describes actually existing economies, Sraffa Shrugged and all, and nothing more needs to be said. I'm asking the other peoples.

And mind you, this is meant to be a question for the theorists. So answers like "we will be able to model agent learning better" are not satisfactory since they deal with a specific problem within a methodological approach (mostly DSGE in this case) rather than the big questions that have been forgotten in these past years. If it's about learning, for example, than it's gotta be something that criss crosses the methodological approaches.

We can bring in the applied folks in on this (of whom I am one, just sort of keeping an eye on the theory as I think all applied folks should) - what kind of theoretical results do you think would have a big impact on that Kudzu sub field of economics called "Applied Micro"? In the sense that it would stop a lot of people from doing it. As long as we're on this topic, what is your Bayesian estimate of the optimal ratio of theory to empirics? In our hearts of hearts, that little place where our irrationality resides, we know that "there's no theory without data"! Of course in our soul of souls we also know that "empirical work unbacked by theory is just data mining"! But if you leave those special places then you do realize that - since we're all economists here - it's probably an interior solution. So what's the break down? Gimme a number folks.


(As an aside, I'm sort of pessimistically rooting for the whole Agent-Based-Modeling approach. Rooting for it cuz I think it does have potential - integrate it with standard GE! And maybe it can get at some of the questions that Alex keeps asking about dynamics and so on. Pessimistically because even at this early stage (and my knowledge of the field is slightly greater than epsilon) I think it seems pretty obvious that it's bound to run into all the standard problems of other methodological approaches; indeterminacy, arbitrariness (there's a million ways to be heterogeneous. Why pick a particular one?) and ultimately, well, hopefully, generality.)

Americans are right - soccer is a ridiculous game

"the ball bounces around randomly for about an hour an a half, then suddenly it hits some guy's head and accidentally goes into the net, everybody goes crazy, and somebody's lost really bad and somebody's achieved a great victory" - a paraphrase of an American columnist, possibly PJ O'Rourke, describing their attempt at trying to appreciate soccer, done from memory.

Austria:Poland - 1:1


The setup: Euro 2008. Poland has lost to Germany. Austria has lost to Croatia. The looser of the Poland/Austria game is eliminated from the competition. Austria dominates for first 30 minutes. The Poles get a lucky, though very elegant goal ... which might have been an offside (similar situation occurs in the Poland-Germany game with Poland the worse off). Energized by the goal the Poles control the rest of the game although they do not manage to score again. In the 92nd minute, at the very very very end of injury time, the ball is kicked into the Polish penalty box and an Austrian player very clearly either slips or takes a dive. The referee awards a spurious penalty kick to the Austrians which they take advantage off to tie it up. The Poles, or at least this one, feel totally cheated and for all practical purposes both teams are eliminated.

In American football, basketball or baseball, a bad decision by a referee will give one team a slight advantage (in critical situations perhaps a crucial slight advantage) in terms of winning the game. In soccer a bad decision by a referee not only can very easily determine the outcome of a match but in many cases the entire standing in a group/division and even advancement to the next round (i.e. play offs). There are huge discontinuities in terms of the marginal effects of a referee's decisions.

To be exciting games we like to watch and play need a mixture of uncertainty and reward to skill and effort, unless one's a gambling sort who thinks that roulette is an intellectually sophisticated game. In this respect however soccer is worse than pinball. True, skill plays a role - you can rely on Argentina to beat up on The United Arab Emirates every time. But if the teams are even remotely evenly matched in terms of the randomness/skill content it's not even a pinball game. It's a pinball game with broken flippers, a roulette wheel where a referee occasionally decides to magically and arbitrarily move the silver ball closer or farther from the number you picked.

The great power wielded by the referee and the impossibility of double checking his decision (by design, since the technology exists to do this and American Football, for example, has managed to implement it successfully) also creates great potential for corruption. And any honest assessment of team sports is pretty much bound to conclude that FIFA and its various national counterparts are rife with it. From how locations are chosen, to how groups are selected, to how matches are adjudicated.

In addition to corruption there's other problems that this huge amount of uncertainty combined with power of no appeal on part of the refs creates (in addition to the fact that soccer refs are the least respected among their type/proffesion across the sports). First there's an obvious incentive for players to learn how to "game the ref" rather than focus on skill - the dives, the fake injuries, the prima donna acting that characterizes many a "star" team. Second, since with this much uncertainty it really is hard to objectively rank teams in terms of their skill, the all to human referees come to rely on certain rules-of-thumb, strength of tradition, and "I think thats right because it seems to have been right in the past". Germany, Brazil, Argentina, Italy win because... well, they're supposed to win, particularly if in terms of fundamental objective skill the game's close.

Of course this begs the question - why is soccer popular in the rest of the world, but not so much in US? Here everyone's got their favorite answers which either boil down to assertions that Americans are too crude and brutish to appreciate the grace and beauty of the game, or, on the other side to mistaken assessments that "soccer is a game for teenage girls" (as anyone who's ever played it knows, soccer is as physically demanding as American football, probably more than basketball, and certainly more than baseball). But the simple truth is that it's all about tribalism - in its national or regional forms. Without the tribalism the game of soccer looses most of its appeal. It can best be seen as either a very beautiful excercise in synchronization -in which case it should be judged in the same way as ice skating competitions and water ballet. Or as a simple spin of a roulette wheel. Or perhaps both - a spin of a very beautiful, ornamented and elegant roulette wheel.

And US is a very non-tribal place. While some folks in the South may still smart about those damn Yankees, for the most part a Wyomingian, or a Rhode Islander tend to have fairly weak connections to their place of residence. This is compounded by the fact that often times, for real tribalism to be strong, a Nebraskan-of-Guatemalan-origin would have to feel very strongly about Nebraska, a Delawerian-of-Vietnamese-descent very strongly about Delaware and a some white bread Oregon hippy about Oregon. To be sure, these kinds of feelings do exist but compared to ROW they are very muted, for fairly obvious reasons.

The outcome of the Austria-Poland game wasn't even that unfair. Both teams played well and they were ... evenly matched. Both goals had a good bit of arbitrariness about them (though of course I think the Poles were "border line offsides" when they scored their goal whereas the Austrian penalty kick was clearly undeserved). But the game was a really good illustration of why soccer is a very ridiculous sport.




Some notes:
1. American College football competition actually shares some of the defects of soccer competitions - mostly due to the institutional design where the (top 25) winners are chosen by voting by folks who obviously have vested interest in the outcome. And given the large number of college football team you get intrinsic intransitivity (haha - alliterative joke alert) - A beats B, B beats C, C beats A, so who's 1st, 2nd and 3rd?. As a result, much like refs in soccer, the NCAA voters choose teams who are "supposed to win" (or in this case, be ranked high) even when facts on the ground - given that there's room for interpretation - speak otherwise. So USC, Florida, Ohio State ... a few others ... are pretty much always guaranteed spots in Top 10/Bowls even if they get stumped once or twice by gutsy underdogs (which actually happens quite often in college football, which makes it more exciting than soccer (which is too random) and NFL football (which is too predetermined)).

2. I don't mean to imply above that there's a HUGE amount of corruption in soccer competitions, or in particular in regard to this particular game. I don't think the ref was "bought" or even incompetent or anything like that. I do think there is enough corruption in it, created by the nature of the incentives of the game as she is practiced today, and enough uncertainty which makes this corruption possible to pretty much make it a coin flip.

3. I got a post on the difference between games that we enjoy playing and watching and the games that game theorists analyze coming up, but I think I need to cool down a bit. Go outside and smoke three more cigarettes in a row or something. So later.

4. Sorry, Michael, though I don't know if this is your thing.

5. Also note that what American Football, Baseball and Basketball all have in common is that there's a lot more "points" scored in each game than in a soccer game. From point of view of Economics of Sports this makes a lot sense. If each "point scored" is a random draw from some distribution (which could favor one team over another) then with the absolute outcome of a game depending on a large number of points scored that outcome is more likely (by sort of wavy-handy law of large numbers) to reflect the "true" underlying skill of the two competing teams. Of course if the number of points required/time allowed is too large, then not only do we as spectators loose our attention span, but the outcome becomes too predetermined. You want some variance in there to make it exciting. But soccer's got too much of it.