Why Sports are important for Prediction Markets

I recently told a friend, fomerly of the Fed and currently with a large investment bank, that trading sports outcomes helped traders (who are familiar with sports) learn how to better trade and manage risk, thereby adding greater accuracy to the predictiveness of markets beyond sports. He countered that I should feel so strongly about poker and blackjack, but I demurred, proposing that an introductory probability course would be enough to move the student beyond the lessons of those games.

Now, here is the eminent Justin Wolfers on why sports is key to economists, too:

1. Sports provide unique opportunities to test economic theories. Cribbing from a New York Times article, this is the Thaler defense:
   

   "'My justification for doing this is that it's the one really high-stakes activity where you get to watch all of the decisions,'' Thaler said. ''If Bill Gates invited me to watch all of his decisions, I'd talk more about that.''

2. Sports shapes broader national debates. Sports is a microcosm of our broader society and our national narrative on the important issues, from drugs, to race, to cheating, to sexual harrassment often play out on our sports pages. In honor of a particularly compelling example, let's call this the Jackie Robinson defense.
3. Professional sports are an important part of the economy. I call this the Dog defense, not as a dyslexo-religious statement, but simply because dogs raise an important question: aren't pets a bigger part of the economy than professional athletics? If so, why are there so many papers on professional sports and so few on the economics of dogs?
4. Sports participation is an important activity. It seems important to learn whether sports make us happier, healthier or more productive. For instance, it is important to learn, say, what the broader effects of Title IX were. Under this view, research on sports is part of the human capital agenda, leading me to call this the Gary Becker defense.
5. Sports provides a useful teaching metaphor. Many of those teaching Sabermetrics-inspired courses argue that sports provides a useful vehicle for teaching something far more important - basic quantitative reasoning. When I teach my class on behavioral economics, I do so by analyzing anomalies in sports betting markets.
6. Doing research on sports is fun. It was no mistake that the conference I attended was on a Saturday. Many of the academics in attendance were giving up leisure, not more important work. But for some, sports provides a chance to mix work with leisure; of course, if non of the above arguments holds, then it is just a chance to mix leisure with leisure.

Let me now translate this into advice, because I often hear from students wanting to write a thesis on sports. My first response is always: Don't. Too often, we find our sporting heroes more interesting than other people do. (Yes, I have been guilty of breaking this rule.)

But if you must work on sports, make sure you have a defense to this charge. I find the Thaler and Becker defenses most compelling, because they speak to the broader economic issues or yield policy implications. The Jackie Robinson defense is also important, but not applicable often enough. The Dog defense is often raised, but rarely compelling; neither pets, nor professional sports, are really a big part of the economy (estimates to the contrary usually turn out to be more applicable to the Becker defense).