Friday, 3 September 2010

Match-fixing and the Market for Lemons

As you most probably know, this week has been a bad one for cricket, what with the spot-fixing controversy and all (see Cricinfo's full coverage here if you have been blissfully aware so far). The news was especially sad because one of the players accused of spot-fixing is Mohammad Amir, easily my (and everybody else's) pick for the emerging player this year. Anyhow, to deal with the shock and the pain, I figured I'd try and come up with a flippant pseudo-economics-based post on what can be done about match-fixing etc. While I was still formulating my ideas, Cricinfo's excellent Surfer blog pointed me to this article by Malcolm Knox on Back Page Lead, which sets up a pretty nice segue into some of what I had to say:
If bookmakers are stupid enough to take spot bets that are fixed, and players are corruptible, then the result will be that the bookmakers will be stung often enough to refuse taking such bets. If the Pakistan players are corrupt all or most of the time, the market would have become a sham and would have ceased to exist. The fact that the market does exist tells us one thing: most of the time, the players are trying their hardest. When they are not, they are choosing their moments selectively. Otherwise there would be no bookies left to fool.
Now before I get into what I had to say proper, there's something that Malcolm doesn't get exactly right (which was also pointed out by one of the commenters on his blog): bookmakers don't usually get on the other side of a bet. They're supposed to set up a market by setting the odds of a particular result and finding two entities who are willing to take either side of a bet, with the bookie usually earning a decent fee from both, and the winner of the bet taking the money. (Note:In a way this is not unlike an investment bank helping to set up a securitization deal by putting together say a bunch of mortgage-backed securities from one set of lenders and getting a rating agency to assign a rating, like a set of odds, that define how risky the resulting CDO's tranches are, and then selling said CDO tranches to some other chump and taking a hefty fee in the process, thus getting a fixed payoff while leaving the buyer to face any risks involved in the deal. Of course, the last few years saw the i-bankers believe their own spiel and holding on to said CDOs, eventually bankrupting their parent companies and more. Sadly, bookmakers seem to be more aware of the risks involved in their bets than i-bankers.) (Note: the previous note was drafted just to show that I've recently read Michael Lewis' 'The Big Short' and now feel like dissing a few i-bankers).
So anyhow, what Knox should have been worrying about is not the bookmakers but the punters who are willing to take the other side of the bet for a spread-bet, even though there was the possibility of fixing. My own guess is that most punters don't take up just one side of one bet - they too would make a string of bets to hedge against losses.

Now one of the factors that would actually encourage punters to think that the bets are fair and they can easily hedge, would be the belief that most players are honest, and the bad ones are weeded out. A life ban for a player who cheated, in this case, could plausibly encourage more betting! How? Here's my pseudo-econ explanation:
Way back in 1970, George Akerlof came up with a seminal paper on asymmetrical information called 'The Market for Lemons' (wiki link). The idea there was that in a market where the sellers of a product -specifically, used cars - knew more about the condition of their cars than buyers. Since buyers were unsure of the quality, the average price they would offer would be lower than the price of a well-preserved used car would be. Now this would in turn mean that the sellers who actually have good used cars would not want to sell at a lower price, which leaves only the sellers of badly-maintained cars willing to sell. This in turn would reinforce the buyers' belief that all used cars are bad (lemons), and would drive their price lower, and so on and so forth in a vicious circle. Now in cricket, we have the opposite situation. Life bans for cheaters would signal that those who are left are quite probably honest which means that the events that are being bet upon aren't fixed and are instead decided by a combination of honest effort and chance. Here's one point where perhaps i-bankers win back a point: if the punters had Phd-toting quants assisting them, they might have more rationally looked at the events of the past and calculated a probability of any given player being dishonest and factored that in when making a bet. However, since most punters are also (probably) die-hard fans, they would confidently (and somewhat irrationally) assume that all players not yet caught are completely honest.

Which brings me to a discussion of the players themselves, and what might be a way of setting punishments for cheats. Knox rightly points out that the bent players don't always cheat, but rather, would pick the moment when they can let their standards slip. We could probably make a conjecture of what the decision-making process in this case would be. Since players stand to gain both money and reputation (which can help if they want to cheat later), they (at least, not the smarter ones) would not cheat in the bigger marquee events - the World Cup, say, or the big Test series. The best occasions are in inconsequential tournaments and matches (think Sharjah and other cricketing backwaters) where the spotlight isn't very much on the players and fans may be more forgiving of a 'loss of focus'. Admittedly, those who got caught were those who cheated at more marquee events (Cronje's Test, this England-Pakistan series), which only goes to prove that they were either a little too greedy or too naive.
So what does this mean? Well maybe instead of an all-or-nothing approach - a life ban or a clean chit, how about handing out graded punishments? Perhaps we could ban players from certain forms of the game for a given period - no World Cups and Tests, but they could be allowed to play first-class cricket and T20 and tournaments-sponsored-by-cell-phone-companies, perhaps. That way, the players with tarnished reputations know that if they want to keep going at quite possibly the only job they know, they will have to play twice as hard and honestly. At the same time, the average punter will know that there are more players who have been dishonest in the past involved, they might actually think twice about taking on a bet that sounds too good to be true. Which might in turn bring down the amount of betting.

On then to another important aspect of cricket: the fans. Would they want to watch games that might involve players with dodgy reputations? Probably not. Maybe (hopefully), we would we see a flight to quality, with people opting instead to see stuff like Test match cricket for the spectacle. Rather than fill up the calendar with hundreds of meaningless ODIs, we could have more series that are eagerly awaited (and monitored) and which actually linger on in our collective memories. More discerning viewers might also mean that broadcasters might have to improve the quality of their programming - more Michael Holding, less Navjot Sidhu, for instance.

So all in all, win-win then. We could make something really positive out of all this, if we just give it some thought.

Yeah right, who am I kidding. This sucks.

UPDATE: K very astutely pointed out in the comments that I hadn't explained the link between match-fixing and the market for lemons too well. I've elaborated a little further in the comments. Going by what I've said, it struck me that the ICC and various administrators would be analogous to used-car salesmen. Which seems about right.