Mar

10

 Scorecasting: The Hidden Influences Behind How Sports Are Played and Games Are Won by Tobias Moskowitz and Jon Wertheim is one of the best books for market professionals to read. The authors categorize all kinds of situations in sports and show how they effect the outcome. There are main themes on the endowment effect, value of blocked shots, rounding errors, bias by class and race, home advantages, officials giving the home team the advantage, importance of superstars, value in draft picks, importance of overtime advantage, influence of drugs by race, pressure and length of time away as a determinant of accuracy, the hot hand myth, and others. Each chapter starts with an anecdote about a game, and then shows how to quantify how factors covered in the anecdote can systematically be quantified.

It's a model of how market people should consider the markets. All factors that might influence the results are counted and controlled for. It suggests a million hypotheses about what affects the market. The path that leads up to the outcome is highly relevant in all sports, as it is in markets. It's not just where you are relative to the start but how you got there, coming from behind or being ahead. The home court advantage is consistent in all sports over all time periods, in all geographic areas. Suprisingly it has little to do with travel weariness, or the enthusiasm of the fans, or the idiosyncrasies of the park. I can hear all the sports fans saying, "but, but, but". However, the authors test all likely hypotheses to see what is really happening.

They attribute it to officiating bias. The officials don't wish to be berated, and wish to give the home team the edge on disputed calls.

The statistics on baseball are particularly interesting since they have the exact trajectory and outcome of each pitch, and can see when the umpires made bad calls, and the batters and pitchers made accurate pitches or swings.

It leads directly to such tests as whether back to back wins are more common over weekends or during the week, or during holidays. That's the kind of thing the authors routinely study. They have a nice page or two on how these factors affect markets.

In particular they talk about undervalued and overvalued stocks the same way, the general manager thinks about overvalued and undervalued players. Their discussions of market factors are regrettably shallow, as they talk about earnings misses and earnings surpasses and exact hits without testing the effect or its changes. As always, the people in one field present very interesting hypotheses that should be extended and quantified in our field without the expertise to apply them accurately in other fields. But their ideas are very suggestive and opens up a wide canvass for all who have the desire and persistence to apply the tests accurately, taking into account the principle of ever changing cycles.

The chapters on going for it, particularly the endowment bias of hating to lose what you've gained much more than loving to win are particularly telling and poignant and should be read over and over by market people with a view to eliminating this pervasive bias from their activities. Overall the authors have done a great job, and I would add this book along with Horse Trading, and The Principles of Professional Turf Betting, and Monte Walsh and Atlas Shrugged as 4 of the 10 best books for market people to read.


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