Thursday, February 21, 2008

Better football through science

A fascinating story about a paper by Michael Bar-Eli et. al., on the usefulness of data analysis:

Want to know how to stop a penalty kick? Don't ask the goalkeepers; ask the academics. A group of Israeli economists studied 286 penalty kicks and found that most goalkeepers decide to jump right or left before they can really see where the ball is going. Based on the distribution of kicks, the researchers concluded that the smartest choice would be to remain in the middle of the goal.

You don't have to be a hen to know about eggs. But you may need to be an economist to know about football.

In this `bias for action' (i.e. jump right or left before you know it's optimal), I am reminded of active fund management. The motto of index fund management is: Don't just do something, sit there. Index funds are a very good investment strategy. But there is a strong bias in the real world in favour of earning high fees in return for perceived action.

Also see the next page, where there's a paper by Divya Mathur on marriage in India.

5 comments:

  1. In Champions League game AC Milan vs Liverpool which Liverpool won eventually Dudek was pitted against Dida in the penalty shoot out. Dida just stood there where whereas Dudek distracted the penalty takers by moving sideways and managed to save more penalties than Dida could.

    It could be what works for you most. What say Ajay?

    Nitin
    http://my2dimes.blogspot.com

    BTW: It's a classic game. Watch it if you are remotely interested in football.

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  2. It sounds like a partial equilibrium analysis. Surely, if the goalkeepers changed their behavior by standing still, the penalty shooters would alter their behavior.

    The question is, what rule should the goalkeeper follow knowing that if he follows a fixed strategy, the penalty shooter will adapt, and vice versa ? There ought to be a probability story here.

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  4. I guess as they adapt their behavior based on different situations, it brings us to the conclusion what works for you most.

    Nitin
    My 2dimes

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  5. Interesting you should say that. My personal belief is that indexes perform better partly because there are futures and options on them. Indices themselves are a derivative and then you have another derivative on them. The arb potential is the "house advantage", tilting the scale. (Okay, unproved and all that)

    Another theory I heard: Most research and analysis is paid for by actively managed funds. If Index investing were to go mainstream, (fundamental) analysis would have no value, because heck,you're investing in an index. The lack of analysis will lead to a mismatched price-value equation and active management will then generate alpha in comparison, which leads us back to where we are today.

    The current situation is not much different (in unfairness) from the one in which index funds or index investments are the majority destination. What tips the scale over is the human belief that someone somewhere knows something and it's most likely the fund manager.

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