Why refs are biased
It was the first quarter of an ACC football game. The ball was on the offensive team's 35-yard line—fourth down and four. For the past 50 years, this had been a coaching "no brainer." But the punter didn't head for the field. They were going for it.
It was the NBA playoffs, two minutes into the fourth quarter, and Dwight Howard, the Magic’s star center, got his fifth foul. One more foul and the league’s two-time defensive MVP would be out of the game. But instead of sitting Howard—saving him for the crucial final minutes of the game—the coach left him in.
It was the 2011 Masters. Tiger Woods was lining up for an easy ten-foot putt for birdie. He missed, falling short by two feet. A classic case of loss aversion.
If you happened to watch these scenarios play out in the past year, you saw firsthand the research focus of Tobias Moskowitz, Fama Family Professor of Finance.
Scorecasting, the New York Times best-selling book that Moskowitz coauthored with L. Jon Wertheim, a senior writer at Sports Illustrated, has been called the “closest thing to Freakonomics since the original” by Steven Levitt, William B. Ogden Distinguished Service Professor of Economics. ESPN’s Jeremy Schaap said the book “will change the way you think about and watch sports.”
Confronted with the book’s mix of data-driven economic analysis and behavioral science, some football coaches have vowed to rethink their fourth-down strategy, while refs have considered why they made some of the biggest blunders of their careers. One of Scorecasting’s most controversial findings has spurred Dallas Mavericks owner and notorious referee critic Mark Cuban to say, “If this book had been written years ago I could have just handed it to the NBA rather than getting fined all those times!”
While the general public might be surprised that Moskowitz—who teaches classes on asset pricing and investments—has emerged as a quasi-sports pundit, it’s not much of a surprise to those familiar with his work.
Moskowitz is certainly one of the most creative young economists in the country—according to the American Finance Association. At the age of 35, he became the second recipient of the Fischer Black Prize, which honors the top finance scholar under the age of 40. The AFA praised his “ingenious and careful use of newly available data to address fundamental questions in finance.”
Moskowitz also is known for his far-ranging interests. “He’s a throwback,” said Eugene Fama, Robert R. McCormick Distinguished Service Professor of Finance, as he scrolled through Moskowitz’s publications, which include work on corporate finance, asset pricing, real estate, entrepreneurship, behavioral economics, and even a look at usury laws in the 19th century. “In an era of specialization, he’s a rarity.”
A new approach to the home bias puzzle
One of the pivotal moments in Moskowitz’s career came during his second year of graduate school at UCLA.
For years, finance scholars had sought to solve what’s known as the home bias puzzle: Why do people invest so much money in their domestic markets, virtually ignoring international markets, and giving up the seemingly large benefits of diversification?
Numerous theories existed, focusing on variables such as sovereign risk considerations and national tax and exchange rate issues. One prominent theory posited that local investors have more information about local stocks than they do about stocks that are farther away. “The problem with testing that theory,” Moskowitz said, “is that it’s hidden information—you can’t really measure it.”
One day, after attending an international finance seminar, Moskowitz and fellow graduate student Josh Coval, now a professor at Harvard Business School, thought of a “cute, kind of clever” way around the information impasse. “We couldn’t measure the information that they might have about local stocks… But we could measure where the information was likely to have had its influence.”
The two devised a simple research plan; they would look at the propensity of people investing in their own city. By focusing on domestic portfolios, they eliminated other variables, such as exchange rates, taxes, and sovereign risk. Using Nelson’s Directory of Investment Managers, which included cross-sections of holdings data on the country’s largest money managers, they tallied the distance between money managers and every firm in which they invested. Their hypothesis proved right: geographical proximity was a factor. US money managers showed a strong preference for locally–headquartered firms.
The resulting paper, “Home Bias at Home: Local Equity Preference in Domestic Portfolios,” won the prestigious 2000 Smith Breeden prize for the best paper published in the Journal of Finance and has become one of Moskowitz’s most cited papers.
“Had that paper failed miserably…I might have thought, ‘I’m not going to try that again,’” he said. But given his success, Moskowitz was encouraged.
In 2003, he looked at another “hidden information” situation, thought to be unmeasurable. When banks consider making a loan, they have information about the quality of the borrower that researchers obviously can’t see. In lieu of direct information, Moskowitz and his collaborator, Mark Garmaise, formerly at Booth and now at UCLA, decided to look at zoning rules and tax assessment procedures. Their research found that the structuring of contracts, based on zoning rules and tax assessment, influenced the pricing of properties in a way that was consistent with corporate finance theory. “For years,” Moskowitz said, “contracting literature was thought to be inherently untestable.”
The two papers contributed to his winning the 2007 Fischer Black prize, and more importantly, shaped Moskowitz’s approach to research.
“Never let the data be a constraint. It’s something I always tell my students…Too often they make the mistake of starting by seeing what data exists, and then they come up with an idea.”
Moskowitz prefers a more open-ended approach. “You need to do the reverse. Start with the idea and then look for the right data to test it. You’d be surprised what you can find when you know what you’re looking for.” For example, when thinking about how to measure private information, he says, “How do I tell whether information is part of the explanation? What would I want to have? I would love to be able to see into everybody’s mind and know what information they possess. You can’t, obviously. But you need to start there. And then ask, ‘How close can I get to that? What kind of individuals have better information than others? In what circumstances is that information more prevalent, more valuable?’”
Capitalizing on the fantasy market
Ever since he was in college at Purdue, Moskowitz was irked by some of the “stupid” things sportscasters would say, for instance, “‘He’s one for 13, tonight.’ ‘He’s due to get hot...’ I knew that had to be wrong, and had always thought about looking at the data.” A rabid sports fan (his website lists his interests as “wine, South Park, and most sports”), Moskowitz also had slowly nurtured an academic interest in sports, as an outgrowth of his research in stock price momentum. Sports, he reasoned, would be an ideal laboratory to examine the psychology of decision making.
But what motivated him to devote two years to testing sports theories was, he says, the spectacular success of Freakonomics. “It showed me that there was a market for rigorous economic and data analysis, if conveyed in an interesting way.”
Not only did Wertheim instantly love the idea of testing sports aphorisms against rigorous economic analysis, he immediately recognized an audience: Fantasy Universe. Fantasy sports had added a whole new dimension to the average sports fan; the world was now awash with amateur quant-heads who saw the value of statistical analysis in understanding player and team valuation.
Furthermore, Wertheim was an ideal collaborator because, in addition to tennis, he covered the business of sports for Sports Illustrated, and brought a deep knowledge of the institutions, such as the salary cap rules within the NFL.
There had already been plenty written about how statistically-minded managers were reshaping baseball (as described in Michael Lewis’s classic, Moneyball) and how stats gurus had applied their tools to improving performance in other sports. But no one with econometric skill had approached sports clichés, and the authors quickly found the sports world ripe with low-hanging fruit for statistical analysis.
Data analysis easily debunked the coaching aphorism, “There is no I in team.” Using a set of metrics to define a “star player,” and then evaluating the performance of teams with or without stars, Moskowitz and Wertheim found that it was very unlikely—less than 1 percent of the time—for a team to win an NBA championship, without a star.
The data also raised serious doubts about the standard strategy among basketball coaches of sitting players out when they’re beginning to fall into foul trouble. Looking at almost 5,000 NBA games, from three seasons worth of games, and finding that the average player with five fouls only picks up his sixth foul 21 percent of the time, the authors estimated that most coaches are reducing their chances of winning by about 12 percent in a close game.
Moreover, calling a timeout to “ice the kicker” doesn’t work, punting on fourth down from within the opponent’s 40 yard-line is foolish, and the Chicago Cubs are not cursed. Yes, by using simple statistical analysis, comparing home game attendance to performance, the authors found an economic explanation for the Cubs agony: “Their attendance is the least sensitive to performance in all of baseball…maybe even all of sports.” Even one of Moskowitz’s assumptions—he always believed in momentum when he played tennis and basketball—was overturned. There was no reliable evidence that “feeding the player” with the “hot hand” made any sense.
The truth behind the home field advantage
The Scorecasting findings that generated the most controversy when the book made its debut last spring—and the work that perhaps best demonstrates Moskowitz’s creativity as a researcher—involved home field advantage.
Looking at the data, the authors, along with research assistant Dan Cervone, AB ’09, (now a PhD student at Harvard), found that this was one sports cliché that was not only true, but remarkably true. The data shows that home teams really do win the majority of the time.
- 54.1 percent of the time in MLB
- 62.7 percent of the time in the NBA
- 57.6 percent of the time in the NFL
- 59.0 percent in the NHL
When Moskowitz and Wertheim looked at historical data, they found the same phenomena. Rugby stats from England dating back to the 1870s showed that the home team won 58 percent of the time. The home edge crossed gender, too. The WNBA and NBA had similar home winning percentages. “It’s undeniable,”Moskowitz said. “We found it in every sport, at all times in history, and in all geographies—the home field advantage in soccer,
for instance, is the same across 42 different countries we examined.”
But what proved to be an even more interesting question for Moskowitz was, what, precisely, was driving the home field advantage?
Moskowitz approached the home field advantage as he would any puzzle in finance or economics. He began with a series of hypotheses, in this case, the conventional explanations for the home field advantage.
In what Levitt has singled out as being among the most “ingenious” parts of Scorecasting, Moskowitz devised a way to test the most common explanation for home victories: the assumption that 50,000 fans cheering (or jeering) has an impact on player performance. Moskowitz identified what economists call “natural experiments,” the situations in sports in which the interplay was solely between player and crowd: free-throw shots in basketball, penalty shots in hockey and soccer, field goals in football. One might think that fans screaming and waving would distract some players at the free-throw line. Not according to the data. NBA players had the same shooting percentage on the road as at home. Hockey, soccer, and football statistics showed similar results.
Another widely held fan theory—that road teams suffer because of travel fatigue—was debunked by another natural experiment in the data. “One morning it dawned on me… There are a lot of games where no one travels,” said Moskowitz. So he and Wertheim looked at two situations: where teams traveled no distance (think Cubs vs. White Sox, Giants vs. Jets, or Clippers vs. Lakers), and where teams traveled unusually long distances. There was no evidence that travel had any impact.
The search for an explanation for home field advantage came to a conclusion that may elicit an, “I told you so,” from certain disgruntled fans. “The referees have a bias for the home team,” Moskowitz says.
The authors cite a study on soccer by an economist at the London School of Economics and two colleagues, Luis Garicano, visiting professor of economics and Canice Prendergast, W. Allen Wallis Professor of Economics, that examined 750 matches in Spain’s premier league in the 1990s. The research found that in close matches, with the home team ahead, the referees ritually shortened the game, where the extra injury time was barely two minutes, but if the home team was behind it was four minutes. Red cards and yellow cards, as well as fouls and free kicks, also favored home teams.
Moskowitz and Wertheim’s own research found that MLB umpires had a clear favoritism for the home team. Since 2007, every pitch in Major League Baseball has been videotaped, then tracked and characterized (speed, movement, type of pitch) by a system called Pitch f/x. This massive data set enabled the authors to estimate that visiting teams receive 516 more erroneous strikeouts and are issued 195 fewer walks than they should, over the course of a season. It wasn’t just baseball and soccer; data available from the NFL shows a home bias in awarding turnovers and penalties, as did foul statistics from the NBA. When the NFL instituted the use of instant replay challenges, some of this home bias, particularly the turnovers, went away (the penalties did not, but that’s because penalties cannot be challenged by instant replay).
So why do referees favor the home team?The Moskowitz-Wertheim explanation draws heavily on behavioral science. In the book—and in virtually any interview about the book—the authors generously compliment referees. “They do a remarkable job,” says Moskowitz, “but they’re human.”
They argue that what’s driving the home field advantage is an unconscious force. “Basically, what’s happening is that referees start to see things the home crowd’s way,” Moskowitz says. “It’s human nature. Referees seek information and approval from fans, too.”
Their research found that referee bias is situational; it’s more evident in high stakes situations, such as toward the end of games, and in more ambiguous situations, like borderline strikes in baseball, a scramble for a fumbled football, or an offensive charge versus a block in basketball.
“Social conformity”—the term psychologists use to describe the phenomenon—“is not unique to sports,” Moskowitz points out. “It’s one of the reasons why mutual fund managers and stock analysts tend to herd and make more of the same choices and recommendations.”
In addition to referee bias, Moskowitz draws from psychological literature to explain why golfers—including Tiger Woods—putt better in potential gain situations (a birdie or an eagle) than they do in potential loss scenarios (to hold par, or to bogey), and why pitchers fare better when they’re pitching with a full count that began at 3–0, than one that began with 0–2. “It’s loss aversion,” Moskowitz explains. “Mental framing has a lot to do with performance.”
Although Moskowitz is less convinced of the role psychology plays in moving financial market prices (though he believes it influences market behavior), he believes that it plays an essential role in sports.
“In markets, you can have a lot of investors doing a lot of dumb things, but all you need is one smart investor, with a lot of capital, to wipe them out,” he says. “If owners do stupid things, the only thing you can really do is buy the team away from the owner. If a coach does stupid things, you can complain about it. It’s much harder to correct these mistakes. It’s mostly about individual decision making. That’s why, in my view, sports are such a great laboratory for testing a lot of decision making.”
Moskowitz and Wertheim have appeared on numerous sports talk shows, and they’ve been approached by two NFL and several NBA teams about a possible consulting relationship.
Although Moskowitz is unlikely to give up his day job to become part of a professional sports organization, his work on Scorecasting has led him to more sports-centric research. He’s collaborating with Richard Thaler, Ralph and Dorothy Keller Distinguished Service Professor of Behavioral Science and Economics, on a paper that looks at the NFL combine, and how the metrics used play a role in personnel decisions.
He’s also studying the sports betting market as a means of testing what drives some of the patterns in financial markets.
As for a reprisal with Wertheim? “I’d love to…if there’s enough demand for us to write a sequel.” The sports world is rife with topics and issues to explore, and, he added, “There’s tons of data.”