Snooker and Rent Seeking

A fellow economist, Rob Taylor, challenged me on my risk aversion interpretation of Ronnie O’Sullivan’s refusal to take a black for a maximum break (which would have got £10000+£2000 for highest break) and instead opt for a pink and a 146 (getting £2000 for highest break).

It stretches credulity a little to think about Ronnie O’Sullivan, one of the most talented snooker players that has ever played the game, as in any way risk averse on the table.

A better argument, and one that covers a concept we covered earlier on term, is to think about rent seeking. If you recall, rent seeking is where some agents rather than creating value, seek to apportion the value created by others for themselves. Music piracy is one example – the value is created by the artist, and rather than the artist getting any money, if we obtain a pirated copy of their music for some cheap price, we have paid someone other than the artist who has made available the artist’s work at a fraction of the true value of it – at the same time depriving the artist of any return for their value added.

In snooker, big breaks are a huge part of the game – anyone who watches the games loves to see a big break being built. Sure, safety exchanges can be fascinating, but the reality is that great pots followed by great positional play are what draw in the crowds. Nothing more than a 147, the maximum break which requires a player to keep position on one colour after each of 15 reds potted – the black, a colour that is usually mired in amongst the 15 reds due to its position on the table. To see a 147 is very rare also, if increasingly common.

However, the prize for a 147 is not particularly large. In 2010 at the World Championships, O’Sullivan needed persuading to pot the final black on being informed the prize was £4000. In the case the day before yesterday, the prize was £10,000, five times that for the highest break, yet it is hard to argue that a 147 is worth that little relative to any other high break.

The suggestion thus is that snooker authorities are pocketing (pun intended) the revenues from crowds flocking to watch the game, rather than rewarding the players, who are the reason fans watch the game. They have extracted rents from the process over and above what is due to them for their role in ensuring snooker is a game we can all watch around the world.

Risk Aversion

From Huffington Post

Are you risk averse? Hopefully if you’re a Part 1 student you’ll have already selected on a scale of 1 to 10 how likely you are to take a risk in your quiz for Settlers next term. If not, here’s the link again for the survey.

Google provides me quickly with a definition for being risk averse: “disinclined or reluctant to take risks”. So what is a risk? Again, from Google, “a situation involving exposure to danger”. A situation where something bad might happen with some probability. It could be a very low probability. Generally we also think about the potential rewards of situation also – expected payoffs, to use some economics speak.

We might thus think about the likelihood of something good happening (positive payoff), and the likelihood of something bad happening (negative payoff), and our decision to take part depends on whether we are risk averse or not – willing to accept the probability of the bad thing happening given the probability of the good thing happening. Will we accept a bet where with 10% chance we get £100, but with 90% chance we lost £1?

Why does this matter today? Today, MPs are debating about an extension of UK involvement in bombing campaigns in Syria. We can reduce this down to a situation where with some likelihood something good happens (Isis is defeated), but with some other likelihood something bad happens (Isis not defeated, long costly war). Should we get involved as a country?

You should respond that that is too simplistic. As the Defence Secretary points out (fairly, too, it has to be said), the UK is already a target for IS anyhow, meaning that to decide to bomb Syria doesn’t affect that dimension.

The simple two possible outcomes model seems woefully inadequate for a situation as complex as the Syrian conflict. Yet is it? If we choose to bomb, we have again two possible distinct outcomes (with shades of grey in-between): Our bombs only hit the right targets (IS installations) and there are no civilian casualties (a very good outcome, indeed), or our bombs miss all the right targets and only civilian buildings (a very bad outcome indeed).

What, of course, is more likely is something in-between – but then, if that happens, that means the loss of many innocent lives (more than is currently happening?), and the potential radicalisation of others witnessing these events (more than is currently happening?). Assuming that despite this mixed success, IS is essentially eliminated as a threat, what is left? Is the power that moves into the vacuum (presumably, the Syrian state that we were thinking about bombing just a few years ago) any better?

The graphic at the top of this post is stolen from the Huffington Post, and is really too flippant for the severity of the situation, but it makes a pretty clear point – it’s very difficult to know what the right thing to do is here, and we as the West have been intervening in the Middle East for decades now without any obvious signs of success.

A risky decision, one with a low probability of success – should our MPs be voting for it tonight???