What football fans’ passion reveals about economic decision-making

Have you ever been to or watched football matches in England, Italy, Brazil or other capitals of the most popular sport in the world? If you have, you know that fans of “the beautiful game” are passionate about their teams.

The ferocious fandom that pervades soccer, which is better known as soccer outside the U.S., offers lessons in investment and economic decision-making that extend beyond the walls of the stadium. Senior Marketplace Contributor Chris Farrell takes us on the football field and discusses the research findings with Marketplace Morning Report host Sabri Ben-Achour. The following is an edited transcript of their conversation.

Sabri Ben-Achour: So teams inspire their fans. Their fans are very, very passionate. What does this have to do with investing or making economic decisions?

Chris Farrell: So we’ve seen the growth of behavioral finance studies in recent decades, and the field explores how emotions, biases, and cognitive limitations influence economic decision-making, including investments. And the results differ from the classical economic model of the rational actor coldly evaluating risks and rewards to maximize returns. Instead, look, our judgments are often clouded by emotions and biases in systematic and predictable ways.

Ben-Achour: Football fans are certainly excited.

Farrell: Well, from the studies I’ve reviewed—and OK, it’s far from comprehensive—it seems to me that the scientists who draw economic lessons from the beautiful game are also fans. And that is certainly the case an intriguing study by several economists on English Premier League matches and fans. They conducted a series of experiments on fans who placed almost 40,000 bets on league matches in the 2020-21 season.

Ben-Achour: The Premier League is the highest level of the English professional football league. What did they find with these experiments?

Farrell: OK, so the participants – 800 from Kenya and 1,600 from the UK – were given a budget and asked to make bets on future games, and the economists explored how much team identity or fandom influenced their investment decisions. And most participants were supporters of a particular team, and their bets leaned heavily towards that team – even when the odds were against them winning. So they identified with the team they followed and favored it.

Ben-Achour: So it seems that fans’ passion, their identity, influences money decisions.

Farrell: That’s right, and this study adds to many other similar studies that report the role that identity and social belief play in money management and financial decision-making. And scientists call the impact of money on emotional attachment and preferences an “identity tax”—a kind of intriguing term—and argue that you can’t understand economic decision-making without acknowledging the role of identity.

Ben-Achour: So do these results have broader lessons for understanding behavior around money and finances outside the football field?

Farrell: They support this idea of ​​the identity tax, the importance of identity, it explains why people prefer to invest in domestic stocks even when foreign stocks offer better value, or, you know, they invest heavily in employer stock when diversification is the prudent course of action. action. . So I would say that studies like this try to better understand how people actually approach finance and money.