From an economic perspective, the most interesting play of Super Bowl LVII was near the end of the game, when the Kansas City Chiefs running back Jerick McKinnon sprinted toward the end zone but slid to a stop inches short of scoring a touchdown, like Moses not entering the Promised Land or me rejecting a slice of chocolate cake.
If you watch the replay, you can see Philadelphia Eagles cornerback James Bradberry IV chasing McKinnon but … not very hard, like a dad playing touch football with a 6-year-old. Instead of trying to shove McKinnon out of bounds, Bradberry has his arms by his sides.
What makes this economically interesting is that it’s an example of incentive incompatibility, a problem that crops up in many other realms. The Chiefs wanted to run down the clock to keep the Eagles offense off the field as long as possible. The Eagles wanted the Chiefs to score quickly so they could get the ball back, score a touchdown of their own and send the game into overtime. So the ordinary incentives of the offense and defense were reversed. It became a pantomime. Imagine if you had to watch a whole game like that. The fans would be streaming out of the stadium.
Incompatibility of incentives is usually caused by a flaw in the rules of the contest, whether it be an election or a bankruptcy proceeding. It’s not always easy to fix the rules to prevent strategic behavior. That Super Bowl play is a good example. What rule change could have induced the Chiefs and Eagles to try their hardest on the play? I can’t think of one.
Sports are designed to be zero-sum games, in which one side’s gain is another’s loss. For example, you don’t see boxers trying to work out a win-win agreement before the opening bell. Yet there are many times in sports when the rules inadvertently make it possible for competitors to win by losing or tying. In some leagues, unsuccessful teams have an incentive to lose because the teams with the worst records get first picks in the next player draft. (Although that ignoble strategy doesn’t always work.)
British soccer fans are still arguing over a 1977 match between Bristol City and Coventry City in which the two sides found out during the second half that a mutual rival, Sunderland, had lost its match, which meant they could both avoid being relegated to a lower division if they remained tied. What had been a hard-fought match became a silly passing drill. Incentives for such strategic play are surprisingly common in European playoffs, according to several recent papers. A 2022 article in The European Journal of Operational Research showed that the design of the European qualifying rounds for the 2022 FIFA World Cup made the playoffs vulnerable to “tanking” — deliberately losing — by teams in certain circumstances. The paper proposed a way to minimize the risk.
This wouldn’t matter much if it were confined to sports. But what about elections? Last year, Democrats helped some far-right candidates in Republican primary contests, betting correctly that more extreme candidates would lose in the general elections. They’re doing the same thing now for a State Senate seat in Wisconsin, The Times reported Tuesday. To me, the Democrats’ gambit seems both unsporting and dangerous. A study of German elections in 2012 found that almost a third of voters abandoned their preferred candidate if that person was not in serious contention.
There are voting systems that minimize strategic voting, giving people an incentive to vote for the candidate they really want. But the economist Kenneth Arrow proved in his impossibility theorem that when there are more than two choices, there is no procedure that consistently orders collective preferences and satisfies reasonable assumptions about people’s autonomy and preferences.
I’ll close with an example straight from economics: auctions. In an auction in which bids ascend and everyone sees them, it’s possible to lose by winning and win by losing. As the bidding rises and other people drop out, you may start to wonder if they know more than you do about the value of what’s up for auction. If you win an item, maybe it’s because you overpaid — making you a loser. Realizing that risk, some people will drop out early, so the thing being sold might actually go for less than it’s worth, to someone who doesn’t value it as highly as others. A good solution is a second-price, sealed-bid auction. You bid what you think the thing is truly worth, but if you win, you pay only the second-highest bid. Because there’s less risk of winner’s curse, the object will tend to go to the person who values it the most, usually for close to the amount that person values it at.
Elsewhere: Why Rising Rates Hurt Tech Stocks
The big tech companies don’t do a lot of borrowing, by and large, but rising interest rates are crushing their stock prices nevertheless. That’s because tech stocks’ prices are pumped up by expectations that profits will grow for years to come. They usually pay only small dividends, if any. When interest rates were low, investors were willing to pay a lot for that distant payoff. But when rates rise, Treasury bonds and other safe, long-term, interest-bearing investments start to look like a more attractive alternative.
Quote of the Day
“The Nazi agitator whom, many years ago, I heard proclaim to a wildly cheering peasants’ meeting: ‘We don’t want lower bread prices, we don’t want higher bread prices, we don’t want unchanged bread prices — we want National-Socialist bread prices,’ came nearer explaining fascism than anybody I have heard since.”
— Peter Drucker, “The End of Economic Man: The Origins of Totalitarianism” (1939)
Have feedback? Send a note to coy-newsletter@nytimes.com.
Source: Elections - nytimes.com
