Economics Less Dismal: To End a Recession, Cheer for the Underdog

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 Hey coach, what's the p/e on that? Greece's national soccer team warms up.


Last night, Barcelona's soccer team beat a team from Lisbon, Portugal 2-0, in a rough match. Really rough: cynical tackles, one player thrown out, and a gruesome collision that dislocated a player's elbow (before a TV audience of millions, plus a bunch of replays: yuck).

Worse, the two heavily-indebted nations both needed to win the game, so their investors would be less gun-shy buying stocks this morning.

A paper available online as of late last month from Turkish economists M. Hakan Berument and Nildag Basak Ceylan is claiming that an important sports win doesn't just give the local economy a boost (we knew that) but  a more complex dynamic may affect risk aversion among investors for long after. The key is whether your team is any good.

Studying post-game market behavior in Chile, the UK, Spain and their own Turkish bourse, they found that when dominant teams lost, investors among the fans became briefly less willing to risk capital. The opposite is not true, however: when a dominant team won, it didn't produce more risk-taking on the trading floor the next day. Disappointment affected investors in strong soccer nations like Spain and the UK—but good results didn't.

The reason is the economic psychology of expectations. A win by European and World Cup champion Spain, or a big UK club like Manchester or Liverpool, isn't a variable. It's a constant—Spain's supposed to win, right? Likely events don't cause measurable increases in confidence, or with that, increased tolerance of risk.

A loss, though, or a win by the little guy, provokes the sort of sharp swing a stock trader seeks. "As the importance of a match increases and its result is more unexpected, its impact will be higher."

The result is all downside risk when the big clubs play, and all upside when the underdogs play. "We expect to see that losses have larger negative effects for Spain and the UK and we expect that wins have larger positive effects for Chile and Turkey." In other words: to promote infusions of risk, root for the little guy.

Apparently this isn't just a day-over-day issue. As recently as the early 2000s, unexpected success by local soccer teams improved Turkish industrial production over the medium-term, according to a 2005 study the new research cited.

The study focused on soccer. It did not mention other sports. Placed in an American context, however, the Turkish research would appear to imply a patriotic imperative to cheer, for example, for teams like baseball's upstart Athletics, of hard-working Oakland, California, against teams like the deeply bankrolled Rangers, of relatively prosperous Dallas/Ft.Worth, Texas. The teams meet to decide baseball's Western Division title this evening. The American connection, and the moral imperative to cheer for gritty little Oakland against predictable, faltering Texas, is purely conjecture based on the available research, one hastens to add.

Both Portuguese and Spanish stocks fell as the markets opened today. Portugal fell by seven times as much as Spain, however.