Friday, October 16, 2015

Daily Fantasy Sports Competitions

I am sure most of you have heard about the controversy surrounding daily fantasy sports competitions.  The basic controversy is whether they are games of skill (in which case these competitions are legal) or if they are games of chance (in which case they are gambling and need to conform to each state’s gambling regulations).

There are lots of arguments back and forth based on legal definitions and expert opinions.  But I thought of a much simpler way to decide.  The idea struck me when I saw the other scandal about the Draft Kings employee that won the Fan Duel competition ($350,000) by using statistics on what players were selected on Draft Kings and using this inside information to play Fan Duel.  This was seen as unfair inside information, kind of like with stock trading.

We can deduce whether these daily fantasy sports competitions are chance or skill based on how this kind of inside information is best used.  If the best move is to pick players that no one else has, that would indicate it is a game of chance. This is similar to a lottery.  If you pick the same players (or lottery numbers) as everyone, you will be sharing the winnings among lots of people.  But if you have a unique team (or set of lottery numbers), if those numbers come up, you win it all.

But if the best move is to pick the players that are most commonly picked at each position, that would indicate it is a game of skill. You would be leveraging the wisdom of crowds to identify the ideal combination of players.

There is also a dimension of self-delusion in the form of reverse decision making in the story.  If a policy maker has a philosophical preference for gambling, she may have a gut feeling that these daily fantasy sports competitions should be illegal (whether they are gambling or not). So she would focus mostly on the evidence suggesting it is gambling and discount the evidence that it is not.  Totally unconsciously and unintentionally.  The same thing would happen in reverse if the policy maker is philosophically for legalized gambling or for fantasy sports.  She would gravitate towards the evidence supporting this position and away from the reverse.

There also could be competing incentives in play.  Nevada might be defending its gambling industry rather than exerting the rule of law by banning fantasy sports competitions, even if they claim that it an unbiased ruling.  Some of this might be unconscious self-delusion as I described above. But it could also be the political back door dealing that makes many of us cynical about government these days.

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