6/28/2004

Economical NBA Slam Dunk

This article interested me because it proved economics can be applied to just about anything in life, even an NBA finals basketball game. This blog entitled “Economical NBA Slam Dunk" was written by Stephen Popick, an economist, who used economic reasoning when deciding on which team (Lakers or Pistons) to place a bet on. Although odds were highly stacked on Lakers side, according to most sports analysts, Popick still placed money on the Pistons. Popick came to this conclusion by comparing the two teams statistics in years past. From these statistics, Popick determined that the Lakers had become a stagnant monopoly. They did not have the competition to keep them on their toes and striving to stay on top. They began slacking off. Popick also demonstrated there was a power struggle between the two main players of the Lakers (Kobe and Shaq) which also may have lead to their eventual demise. Conversely, the Pistons worked as a team with everyone doing their best to eventually obtain their goal of an NBA championship title. The Lakers worked as individuals out for themselves. The individuals of the Lakers did not collude and cooperate for the good of team therefore they did not obtain maximum efficiency.
Popick demonstrated the inability of a monopoly to produce long term positive results when he commented:

While in the Long Run, the Lakers have performed mightly, monopolies tend to lose efficiency over time in the face of little competition. A more ‘competitive’ firm found a way to enter. Congrats to the Pistons.

What I took from this article was that power in monopolies cannot last forever. It is the nature of monopolies to produce less efficiently than is possible. Perhaps the Lakers can be considered to be more like an Oligopoly of individual players that should have colluded to get best results, but when it came down to the game, it was every man for himself. A couple of players individual success may have increased, but the teams productivity and efficiency on the whole decreased eventually causing the once almighty Lakers to be beaten by a competitive under dog team.

4 comments:

Dr. Tufte said...

I liked the authors description of the Lakers as lazy monopolists. I don't think any team is a monopolist, but I do think that they get lazy, leading to outcomes that are not beneficial for them (just like a lazy monopolist).

I have two thoughts about the source material.

First, I am sympathetic to the argument in the original post about how the Pistons were more of a team. I think that in general you can measure some aspect of the "goodness" of a team by whether its financial statistics are closer to being uniform. In short, in a team sport, the distribution of pay should be more teamlike. I think this idea probably carries the most weight in football and hockey, less in basketball, and almost none in baseball (where most performances - other than throwing people out on the bases - are individual). But, I have no evidence to support this, so I am glad that someone else is thinking about it more concretely.

Second, I do know a lot about gambling on sports (from a professional perspective). Sports gambling is what financial economists call a strongly efficient market. This means that there is almost no way for anyone to develop a "system" that allows them to win consistently. In small groups, some bettors often win a lot, reflecting the lack of understanding of the people they are competing with. But in large events, such as the Lakers vs. Pistons series, the odds posted in Las Vegas are almost a perfect reflection of the underlying probabilities of winning. This observation helps make the case that the Pistons win was one of the biggest upsets in sports in the last generation.

Jordan said...

Dr. Tufte said:

"...in large events, such as the Lakers vs. Pistons series, the odds posted in Las Vegas are almost a perfect reflection of the underlying probabilities of winning."

This reminds of the primary elections and caucuses. The polls have been wrong a lot, but there was an online website where people could bet who would win the state. Often, the bets were more consistent with the election results than the polls. It's funny what money does to people's opinions.

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