Football – it’s more than just a game
It’s good fun watching – and playing – sport. And, more than that, it can also teach us about decision-making under pressure, exposing some fascinating economic lessons.
The Cup-o-nomics campaign eZonomics launched in the lead up to the Euro 2012 UEFA European Football Championship aims to explain some of these lessons and show how they apply to saving, investing and managing money better.
Play the market
Early on in the campaign, we saw how big sports matches can have big affects on share markets due to plummeting volumes. Sports and economics author Simon Kuper wrote how a working paper published on the European Central Bank website showed volumes traded in a country’s share market dropped 55% on average when that country’s team was playing a World Cup 2010 match.
“If you are not interested in football, you might think a time like this is an opportunity,” Kuper wrote.
“However, markets don’t work that way. They function best at times of busyness. When there are lots of sellers and buyers – in short, lots of competition – it’s easiest to find a good price.”
Beware, there is also evidence share markets often fall after a big football loss.
Did I back my team too much?
Football and other sports provide a clear demonstration of home bias. Numerous academic studies found that fans are too quick to bet on their own team. We tend to back our team even when it’s not logical – and we are reluctant to bet against it. In investing, a similar “home equity bias” exists, in which people focus on investments in their own country at the expense of diversifying investments across a wider range of countries.