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Beautiful Game Theory: Professor Predicts World Cup

A London School of Economics professor has developed complex mathematical formulas that he says can predict what can happen on the pitch. Why is Spain so good? What's your bet?

Is Spain's Iker Casillas giving odds of a repeat? 5-to-1?
Is Spain's Iker Casillas giving odds of a repeat? 5-to-1?
Ouriel Daskal and Uri Pasovsky

LONDON — The World Cup will bring Professor Ignacio Palacios-Huerta's split personality to a whole new level. While billions, glued to TV, will be asking itself simple questions like "How do you stop Messi?," Palacios-Huerta will be watching the matches trying to answer advanced problems in game theory.

A central formula he has developed can help predict the difference between a good player and a true star. This is because the economist at the renowned London School of Economics also happens to be the head of talent identification at a club that reached fourth place in the Spanish league.

The two hats Palacios-Huerta wears prevent him from watching a soccer match like an ordinary person, but they do offer a unique perspective that allows him to find the link between economics and soccer.

In his research — including his latest book Beautiful Game Theory, which was published last month — he uses soccer to confirm his theory. As an advisor, he often uses game theory principles to improve clubs' performances.

But above all, he's just crazy about soccer, “a fanatic,” in his words.

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What are the chances? — Photo: Neier

In fact, the economics professor was once a soccer player himself. “I played professionally with second league club Barakaldo until I was 23,” says Palacios- Huerta. “But then I injured my knee, and then the other one. I was a good student, so I had to choose between going through a surgery and fighting for a soccer career, or sticking to my studies. I decided to quit soccer and went to Chicago for a PhD in economics.”

But it was actually there, in the early 1990s, that he made his major breakthrough as a soccer player. “Even though I had very bad knees, I could still play. Actually, no one else at the university could play like me, so I was God,” he laughs. “I used to play with students from Europe, Israel, and South America, and we always reached the finals.”

The conversation with Palacios-Huerta begins with one of the biggest questions in the world of soccer — why the Spanish league is so successful?

Happy clapping

The country has been struggling with a deep recession and soaring unemployment for more than five years, and yet Spanish soccer is booming, breaking the longstanding correlation between national prosperity and success in sports, as it has continued to dominate both European and international scenes.

“It's true that many clubs in the league experience economic hardships, but Real Madrid and Barcelona receive generous subsidies from the government and do not suffer the same economic trouble as Spain and Spanish soccer. They enjoy TV contracts that distribute the broadcasting rights revenues in a very unfair manner,” he says. “Real Madrid and Barcelona each get 140-200 million euros, and the new champion Atlético Madrid receives 45 or 60 million. It allows Real and Barcelona to maintain the gap.”

Such economic realities enable the two clubs to buy players for record prices and offer them the world's highest salaries.

However, anti-trust European authorities have recently started trying to change the way funds are distributed in Spain, investigating the subsidies the government give clubs, also in the form of generous tax breaks.

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But beyond that, Palacios-Huerta also points to social and political reasons behind the power of soccer in Spain. “Authorities are proud of the Spanish clubs' success in Europe and they want to maintain the system as it is,” he says. In the face of rising joblessness, soccer makes people happy, he explains. “They're not happy about their own situation but they don't go rioting in the streets. I cannot prove it, but people are happier than they should be. And it might be because of soccer.”

In Chicago, Palacios-Huerta's supervisor was Nobel laureate Gary Becker, one of the 20th century's most renowned economists, who died last month. Becker was a pioneer in attempting to explain human behavior through economic instruments, and some consider him the father of behavioral economics.

“Becker's basic idea was, "incentives are important" — for your family, in questions about education, whether to break the law. He showed that incentive-based theories can predict human behavior,” explains Palacios-Huerta.

In a number of studies over the past decade he employed Becker's theory, but in reverse. “If you can use economic ideas to explain human behavior,” he says, “then any human behavior can help in examining economic theories.”

Any behavior — soccer, for example.

In turn, he also translates these insights into practice. He has advised the national teams of Spain and England, and the Premier League's renowned Chelsea FC, about penalty kicks. Today he's also the head of talent identification at the top Spanish club Atlético Bilbao.

Local values

Bilbao is a unique challenge for a scout since it's comprised of only Basque players, from a region whose population is merely three million inhabitants. But despite this limitation, the team has long been playing in the first league, and finished fourth this year.

“On one hand it's not efficient, but on the other it's very efficient. You need to ask "what's important for me?",” says Palacios-Huerta. “It's important to win, but for me there's value in that for myself, my family or my friends are the ones winning for Bilbao. I don't attach similar value when foreign players win in Bilbao's shirt. I prefer being in second league, but when my people represent me. Pride comes from seeing my community succeed or fail together.”

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Will that help? — Photo: Arripay

In the end, therefore, it appears money is not the only incentive. “The idea is to internalize the significance of the club for you and for your community. It is similar to a CEO internalizing the value of his company. If you feel it's your company you would behave differently, compared with a situation when you're in the state of mind of an employee,” Palacios-Huerta explains. "Our club also gives the players their identity, they give the identity to the club and the process makes this family business successful and very efficient in a very tough market.”

In a chapter in his book, he looks into how social pressure can affect individuals' behavior, by showing how local audience makes referees judge in favor of the home team. This is one of the reasons he believes Brazil has the highest chances of winning this year's World Cup. “Because of preference and social pressure, and of course also because they're a very good team,” he says.

“Generally, it's important to remember that when you say Brazil has 20% chance of winning, the meaning is that it has 80% chance of not winning. People usually don't think about it too much.”

But when watching a game, does he remember these statistics? “I remember them. I'm sick. I watch the referees, the penalty kicks, and all the time think in economic terms. I can't go back to when soccer was just pure fun.”

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