Institute of Sports Science

Behavioural economics of competitive balance

10.04.17 – Despite the prominence and relevance of the uncertainty of outcome hypothesis (UOH) for professional sports in general and league management in particular, decades of empirical research have not been successful in establishing clear evidence for the importance of outcome uncertainty for stadium attendance and TV audience.

In a new study, jointly conducted by Tim Pawlowski, Georgios Nalbantis (both University of Tübingen) and Dennis Coates (University of Maryland Baltimore County), the authors try bridging between different behavioral economic explanations for the lack of support of the uncertainty of outcome hypothesis in spectator sports. They test a measure of perceived game uncertainty that is comparable to objective measures frequently tested in the literature. Econometric results suggest that fans do not perceive closeness of a game differently than how economists have tended to measure it. However, fans’ perceptions of suspensefulness are distinct from their perceptions of game uncertainty. Moreover, the finding that fans’ preferences for game uncertainty are dominated by loss aversion also emerges – independently of fanship status – in their stated-preference setting.

The article is now accepted for publication in Economic Inquiry.

In general, the literature making use of behavioural economic concepts that might help to better understand the divergence between the UOH, competitive balance and consumer choices in sports is still small but growing during recent years and offers some fascinating new insights enabling league managers to optimise regulations and cross-subsidization tools in the different competitions. For instance, the new approach in the Bundesliga to encourage competition in the different table regions (instead of the whole league) is entirely supported by some recent findings from the behavioural economics of competitive balance. This and other issues are summarized and discussed in a review article developed jointly by Oliver Budzinski (TU Ilmenau) and Tim Pawlowski (University of Tübingen) which is now being published in the International Journal of Sport Finance.

Pawlowski, T., Nalbantis, G. & Coates. Perceived game uncertainty, suspense and the demand for sport, Economic Inquiry, doi 10.1111/ecin.12462

Budzinski, O. & Pawlowski, T. The behavioural economics of competitive balance: theories, findings and implications, International Journal of Sport Finance, forthcoming.