Bailout

World Cup betting pools: The price of entry

By Felix Salmon

As the World Cup approaches, I’m sure that Reuters isn’t the only place where betting pools are being filled out. Yahoo has quite a tool for such purposes, although it does require that everybody has a Yahoo account.

The microeconomics question here is the optimum entrance fee. The goal is to have the biggest possible pot with the greatest number of participants — but it seems clear to me that as you increase the fee from $5 to $10 and then to $20, the number of participants will fall even as the total size of the pot will rise. Beyond $20, I suspect you’re likely to see even the total size of the pot falling.

My feeling is that $20 is the optimum entry, and not only because it maximizes the size of the pool. If you set the entry fee at $5 or $10, or heaven forbid at some weird number like $12 or $15, then it becomes harder for people to enter, just because you start running into making-change issues. If you have cash in your wallet, chances are you have a $20 in there. Fives and tens are rarer, and in any case there’s always going to be people handing over a 20 and asking for change.

It would be nice to be able to include everybody who wants to play at say the $5 level: $20 is likely to be too much for someone who doesn’t know or care much about football. But $20, I think, it has to be.

Full post as published by Macroprudential on June 08, 2010 (boomark / email).