Economist Justin Wolfers' Proposal to Limit Influence of Gambling

The Wharton School's Justin Wolfers is one of the most respected young forensic economists. Although much of his work has nothing to do with sports, he authored or co-authored two key basketball studies: that much misunderstood study about bias among NBA referees (he wrote that one with Joe Price), and a 2006 study presenting evidence of point-saving in a small percentage of NCAA basketball games.

Wolfers writes in today's New York Times:

Stern may be correct that Donaghy is the only bad apple in the current crop of N.B.A. refs, but sports betting scandals are fairly common. They are the result of persistent economic incentives that can be traced to the structure of sports gambling markets. And these incentives can be changed.

The activity known as "point shaving" gets at the heart of the problem: a corrupt player or official is rarely asked to throw a game to one team or the other. Instead he is asked to influence something rather immaterial, like the winning margin. This is profitable because gamblers typically bet on whether a team will exceed some point differential -- the "Vegas Spread" -- rather than whether a certain team will win.

I recommend you read the whole thing, but here's the gist of his argument: legalize, nationwide, gambling on who will win the game, and things that really matter to the participants. And ban, nationwide, the gambling on stuff that the coaches, players, and referees don't really care about, like point spreads and total scores.

Because however many referees, coaches, and players there may be willing to arrange a certain point spread at the conclusion of a game that has already been decided, there must be far fewer who would be willing to actually lose games at the whim of mobsters, bookies, or gamblers.

I talked to Wolfers about this yesterday and he said that "we believe participants have genuine passion for the game." I totally agree. Nobody much cares if the teams combined score surpasses 203, or if the final spread is more than 10 points. That kind of stuff might be negotiable with minorly corrupt participants. But winning and losing? Only a rare and severely corrupt individual would put those decisions in the hands of gambling interests.

I have one concern with his conclusion, though: I like the idea that gambling would be legal, just so the government isn't pushing all these kinds of things underground. But I'm also convinced that, especally as casinos have appeared nationwide, Americans are just gambling so much. It's bad for the personal finances of a lot of homes, and the amounts of money involved for bookies legal and illegal are just so huge that rigging games has to be unbelievably tempting. With legal national sports gambling, I assume the money involved would only get bigger.

In short, I wish gambling would be totally legal (consenting adults and all that), and most people just wouldn't do it very much. But as people do it like crazy, the options, to me, are murkier.