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Tuesday, September 11, 2012

Olympics Economics


Since the London Olympics rolled to a close in early August, there have been several articles on the subject of the medals table. Some ask if we shouldn’t account for the resources at a country’s disposal and express the rankings in terms of GDP per medal or population per medal.  Others debate the wisdom of assigning a 3-2-1 scoring system for gold-silver-bronze medals (because a gold medal has far higher worth in many people’s minds). And that leads to a question of whether the ranking should simply be based on gold medals, not the total

But all of these conversations sound silly if a country has won just a handful of medals1. Let’s look at India.  How does one explain why a nation with over 1.2 billion people, an economy that’s grown at a rate of 6 to 10% each year over the last decade, an ability to successfully launch satellites and harness nuclear power (just to stick with the serious stuff and not add things like Bollywood blockbusters and cricket stars to this list) should win just six medals and not a single gold in the 2012 Olympics?  There is an answer to this, and it is painfully simple: past performance is a key predictor of future success.  However, if the goal is to break the cycle of low medal winnings, one has to find another variable to counter the effect of “past performance”.  Statistical models that predict the medals table highlight the importance of the “host nation effect”. It's a catch-all factor that captures the inexplicable forces that propel a host country to excel beyond what its economics, population or medal haul in past Olympics can reasonably predict2, 3.

So here’s my proposal to the Sports Ministry of India: make a bid to host the 2028 Olympics. Given the epic power cut a few weeks ago and the slowdown in GDP growth this year, doubts are being voiced about India’s infrastructure, its economic engine and the political will to enact major reforms needed to sustain the country’s development.  A bid to host the Olympics might look frivolous in this light, but it may be just the kind of accelerated effort to focus a nation to carry out important infrastructure projects. It might be a ‘head fake’4 that leads to the sort of positive side effects that don't manifest themselves when an already developed nation hosts the Games. Who knows, it may speed up water clean-up efforts, to help with swimming and rowing events. Better schools that provide well-rounded curricula that include sports and thus enhance children's physical well being. It would offer private enterprises a chance to invest in efforts that may not lead to immediate profits but may well generate goodwill and a payback in the long run. The 16 years leading up to the Games would give ample time to groom and inspire the next generation of world-class athletes. 

It is time for the Sports Ministry of India to get their creative juices flowing. Perhaps the Olympic village shouldn’t be in one large, choking city like Delhi or Mumbai, but be set up in a small cluster of newly built cities. After all, according to a McKinsey study on the infrastructure needs of the country, India needs to build a city the size of Chicago every year for the next 15 years. 

If comparisons motivate, let me point out the track record of BRICS nations: China hosted the 2008 Olympics, Brazil will do so in 2016, South Africa did a fabulous job with the 2010 Soccer World Cup and Russia is no stranger to large scale events.  In addition, India successfully hosted the 2010 Commonwealth games with 71 participating nations (and incidentally came second in the medals tally). It might be a good idea to test out the host nation effect in India.  Let the games begin! 

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Notes & References:
1.      They may sound sillier if you care a whit about Olympic medals to begin with. But I’m going to assume that most people and nations care, especially the emerging ones such as China, India and Brazil (for one example, the Economist reports on China’s complaints about its showing at the London Olympics, even though – or because – it was a close second to the US). 
2.     Robust statistical models have been developed to predict the number of medals a nation would win in a future Olympics taking into account certain obvious factors such as a county’s population and GDP per capita as well as less apparent ones such as climate and political structures. Other variables include past performance, “Soviet Bloc” country status and host nation status.  For more details, read “Who Wins the Olympic Games: Economic Resources and Medal Totals”, by Andrew B. Bernard and Meghan R. Busse.       
3.     Britain won one gold in the 1996 Olympics in Atlanta. As a host in 2012, it won 29 gold medals. For one example of the inexplicable forces that a host nation enjoys, think about how Andy Murray beat Roger Federer in straight sets to win the Olympic gold exactly a month after losing a grand slam to the same player at the same location.  If you’d prefer to ponder more guaranteed ways to win as a host, experts say that in sports like cycling and canoeing, knowledge of local conditions may matter. 
4.     In his last lecture at Carnegie Mellon University, late professor Randy Pausch used ‘head fake’ in the sense of ‘indirect learning’.  He said: “We send our kids out to play football or soccer or swimming or whatever it is, and it's the first example of what I'm going to call a head fake, or indirect learning. We actually don't want our kids to learn football. … we send our kids out to learn much more important things. Teamwork, sportsmanship, perseverance, et cetera, et cetera.

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