When will Ronaldo dive? Insights from behavioural economics

With the World Cup upon us, it seems everyone is getting in on the act. Investment banks – who have steered us so selflessly away from bad investments over the past ten years – have been out in force in recent weeks with regressions telling us who is going to win the World Cup. Baseline Scenario has an overview, with three of the four banks he lists picking Brazil.

[Quick digression – the problem with these regressions is that they are not very good “out of sample”, i.e. making predictions. Naturally, if you do a regression using data from all the past World Cups, you’ll come up with Brazil, followed by Italy, as the most likely teams to win. That’s because that’s what happened in those World Cups. Equally, if you put a host country effect in, to capture how teams like England, Germany and France did well when they hosted the tournament, of course you’re going to get the odd result that South Africa are shoo-ins for the second round, as UBS did.]

I decided, given my poor betting history, to spare readers my football predictions. Instead, I’m going to try and answer a much more interesting question – when will Ronaldo dive? It turns out that economics – in particular behavioural economics – has lots to say on the subject. First up, though, a pop quiz.

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Present bias: Ronaldo vs. himself

If you picked (1) above, then the part of behavioural economics you may think most relevant in explaining when Ronaldo will dive is the concept of “present bias”. Traditionally, as we all know, economics assumes people are rational machines, able to choose perfectly between choices today, tomorrow and at any point in the future. The world around us though is full of evidence that people aren’t the best at choosing between now and later – just look at anything from addiction to people’s pensions to how often you go to the dentist.

Suppose Ronaldo knows that he has got one dive to use up in the World Cup. The later he uses it, the bigger the payoff. So a Ronaldo Rationalis would surely wait until it was needed most – last five minutes of the World Cup final, for example. Indeed, if you were to ask him off the pitch before it all kicked off, that’s probably the answer he’d give (if given truth serum). But when he’s actually playing in a match, all of a sudden, that match seems so much more important than anything else. All of a sudden, being in the moment has distorted his preferences.

The standard model of present bias in behavioural economics suggests that people who think they’ll be able to be rational – but end up in the heat of the moment changing their mind – are generally able to wait a bit, depending on what’s at stake… but they still reach a point where they give up too soon.

If you picked this, expect Ronaldo to pirouette inside the box in the last 16 or quarter-finals.

Reciprocity: Ronaldo vs. the defender

If you picked (2) above (something tells me you’ll be in a minority), the bit of behavioural economics you’ll think most relevant is reciprocity and fairness.

Laughable as it may seem now, apparently for a good 30 years, economists around the world scratched their heads in utter confusion upon observing the following: an ultimatum game is played, where one player has $100 to divide up between herself and the other player. If the other player refuses the deal, both parties get nothing. 1970s economists couldn’t understand why a rational human being would refuse even $1, albeit giving the other person $99, as $1 is strictly greater than $0. Economists who solved this apparently intractable problem – by recognising that people value reciprocity and fairness – were lauded as out-of-box genii.

Thankfully, by this point, every graduate economist learns that there’s more to life than money. (In fact, come to think of it, the entire existence of international football, which was until recently entirely unpaid, should have been ample testament to that anyway.)

So, if fairness is what’s driving Ronaldo’s dive-or-not decision, when will he dive? Naturally, it depends a bit on what you think the relative value of being nice versus winning is to Ronaldo. A general rule: he should be least likely dive if he knows/plays with/likes the defender that’s marking him in that match. So no dive against England or Spain, perhaps, but maybe dive against the Latin American or Asian sides. (Then again, given his tricks on poor Rooney last time around…)

Ambiguity: Ronaldo vs. the defender vs. the referee

If you picked (3) above, to you the role of the referee – and what Ronaldo doesn’t know about the referee – are most important. Standard economic game theory would suggest that there could only really be at most a couple and more than likely one outcome for a situation where people know what’s at stake.

However, that standard theory assumes that people are phenomenal number crunchers, churning out probability distributions at the drop of a hat. It may not surprise you to learn (as much as it did the economics profession) that people aren’t actually always probabilistic machines. We don’t just make decisions that are risky (i.e. have some known rate of success), we have to make decisions under uncertainty (i.e. where we don’t even know the rate of success). Our aversion to ambiguity may lead us to make decisions that we otherwise wouldn’t make, so as to avoid the worst possible outcome.

In such a world, Ronaldo no longer enters his game with the defender knowing that if he dives there are, say, 10 utility points for winning a penalty and -5 for getting booked. (The defender would have a similar choice.) Now, they have to factor in the referee, who may be some sort of arch neocon on diving, booking any graceful tumbles in the box at all, or the ref may be a striker’s dream, happy to point to the spot at the smallest touch.

Both Ronaldo and the defender do not know for certain what type of referee they have. If they both apply the “ambiguity aversion” principle (known as maxmin expected utility), they may end up warily avoiding causing a scene (i.e. Ronaldo doesn’t dive and defender doesn’t scythe him down), as they both fear the worst.

If you picked (3), then, when might you expect Ronaldo to dive? An ambiguity-averse Ronaldo may not dive at all, unless the potential rewards become too great (relative to the potential downsides). Ronaldo to dive in semi-final or later, if at all. Then again, if the World Cup continues along its current path of ten bookings and a sending off per match, Ronaldo’s perceived spectrum of refs may make him wary of diving.

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A very different post today, I know, but hopefully a bit of fun and a useful insight into modern microeconomics and its struggle to make its models a little more realistic. The Geary Institute at UCD is one of the places doing just that – an example from their blog is here.