Skin in the (Ball) Game: Do Teams Underperform When They’re Out of the Race?

Recently, I was listening to one of my favorite non-baseball podcasts when baseball unexpectedly cropped up. Well, the theory of skin in the game cropped up. The idea, espoused by many people but notably by Nassim Taleb, is that actors perform better when they get rewarded for a good outcome and punished for a bad outcome. Want a better doctor? Fine them if they misdiagnose a patient, but give them a bonus for prescribing the correct treatment. Better money manager? Force them to invest all their own money alongside their client. You get the idea.
Anyway, one example of skin not being in the game is a sports team playing out the string. For most teams at most times, sports is a very skin-in-the-game-intensive field. If you hit well, you get paid more. If you don’t, you might get sent to the minors. If your team wins, they make the playoffs. If the team doesn’t win, no postseason. The incentives are straightforward.
At the end of a long season, however, it might not feel that way. If you’re 50-100 in late September, the rewards of a good game aren’t that high, and the cost of a bad game is quite low. If you’re 15 games out in the race, being 16 games out won’t suddenly bring out the detractors. You can think of these teams as having no skin in the game; the result of one game won’t change anything for them. Read the rest of this entry »











