Esport: Suspense and surprise, luck and skill

I’m in the middle of writing my bachelor thesis in economics right now and so far it’s been a roller coaster and we’ve had to change subject multiple times now, which is a bit stressful to say the least. Since I’ve spent a lot of time reading research and thinking about what could be potentially interesting research questions, I figured I’d share a little bit of what I’ve learnt and perhaps someone in the future will benefit from it. To see all footnotes and reference, the text can be read in pfd format here.

Suspense and surprise in video games

The first idea I had of what would be an interesting subject to delve into was suspense and surprise in e-sport. I came across a theoretical article published in 2015 where the authors develop a microeconomic model for quantifying suspense and surprise. (I first heard about it from an episode of the podcast freakonomics).

The starting point for the suspense and surprise model is thinking about why it is that people watch sports, read mystery novels, follow political elections and a range of other activities that wouldn’t really make sense if it was the acquiring information that was the purpose. A more reasonable explanation would be that people get joy from the way the information is delivered in these situations. Basically, their theory is that people gain utility from being held in suspense or the feeling of being surprised. Researcher have in experiments shown that suspense do increase the entertainment value of sports.

To try and explain it simply, suspense is what you experience when you anticipate that soon something big will happen that will change your beliefs. A situation with high suspense could for example be that you think that the outcome of the serve is likely to determine the outcome of a tennis match, or that the who gets the votes from a particular wing state is likely to determine the winner of a political election. In the model, they express this mathematically: suspense is then measured by the variance of your beliefs in the next time period.

Surprise is then measuring how much your beliefs changed from the previous time period to this one. If something happens that totally changed your beliefs about will win an election, who’s the murderer in the mystery novel or win the football match, then you will be feeling a lot of surprise. These two concepts are related to each other, suspense is about what you expect to happen, surprise is about what then actually happens. Both suspense and surprise is about how information is delivered to you, not the actual information.

The problem with this theory is that it’s a bit tricky to test. This is because we need data on people’s subjective beliefs about the likelihood of specific events and how these change with time when more information is revealed. One way to deal with this is to use live betting odds (which measure the aggregated beliefs of the bettors about the likelihood of an event happening) as an approximation for people’s subjective beliefs. This approach was used by (Bizzozero et al, 2016) to apply the suspense and surprise model to tennis matches at Wimbledon.

Betting odds is enough to create estimations on the level of surprise the audience experience at any given point during a sport match (or any event as long as there are live betting markets operating). If you have data on concurrent viewership (how many people watch the game at any given point of the match), it’s not very difficult to test if there is a relation between surprise and viewership. the idea being that people are less likely to stop viewing the match (turn off the tv) when something surprising is happening or has happened.

Suspense is a bit more difficult to quantify, since you not only need people’s actual beliefs about the likelihood of player X winning the match at every point of the game (for this we can use the live betting odds again), we also need to know people’s beliefs in hypothetical cases. What would their beliefs have been if player Y would have won this serve instead of what actually happened, that player X won it. And we need this for every scenario at every point of the game. This is what is meant by the variance of beliefs in the next time period. If there are only two outcomes of a tennis serve, then suspense is measure by the distance between beliefs based on what happened and what you would have believed in the counterfactual case.

The research article I mentioned above where the authors look at suspense and surprise at Wimbledon, they create a simulation model to create predictions about the likelihood of each player winning based on data of what happened in the game as well as historical data about each players previous performances. The predictions by the simulation model was very similar to what the live betting odds predicted, and by tweaking this model they were able to make predictions about the counterfactual situation in every point of the game and hence estimate the level of suspense at every point in the game. To be honest, that is a very clever way to do it, I was impressed reading their method section. For more complex games, where the game can’t be easily divided into subgames and turns but instead play out continuously, it’s much more difficult to create simulation models and estimate suspense. In video games such as dota, CS:GO or Fortnite, the number of possible actions at every point in the game is almost endless so quantifying suspense in such a game would be quite a daunting task. Though I actually found a research plan from a group of researchers who planned to do this to see if the level of suspense in a match in the video game League of Legends can be used to predict the likelihood of players continuing to play the game or not. Unfortunately I could not find if they actually went through with the plan or not.

As is evident from the statistics on viewership on video game streaming sites such as Twitch and youtube gaming, entertainment habits are changing rapidly, especially among young people. The audience of people playing video games is growing fast and this creates interesting questions about what it is that makes a video game popular with the audience. Video game developers are no longer only in the industry of providing entertainment for the players, but also entertainment for a growing streaming audience. If the streaming viewers and the gamers have different preferences then that pose an interesting question for game developers how to weigh there interests. Even if the game developer don’t make much money on the viewers directly, it’s still a form of marketing for them.

If the audience have a preference for suspense, then we can expect the strategies used by popular streamers to be different from the average players because they have a crowd to entertain. If we can identify how these strategies differ, then that can tell us something about the audience.

Two of the most popular games right now on twitch are PUBG (short for Player Unknown Battlegrounds) and Fortnite. These games are both what are called battle royal games which are similar to the tournament in the hunger games series for the one who’ve read the popular books or seen the movies. A hundred people are dropped on an island to scavenge for weapons, armour and other useful equipment. A player wins the game by being the only survivor left on the island. It’s possible to win this game by staying hidden and wait for all the other players to kill of each other. Such a player strategy isn’t very suspenseful to watch for the audience of a video game streamer however. A players who throughout the game continuously risk being killed by engaging with enemy players will produce a more suspenseful game for the audience.

I suspect therefore streamers are more likely to apply more aggressive and/or riskier strategies compared to non-streaming player. Can this be measured? I think so, if more aggressive tactics also mean they will encounter more enemies, then they are both more likely to be killed and to kill more players than other players that are as skilled as them. I have not however found that kind of statistic, but maybe someone will be able to find or gather that in the future.

    Skill and Luck in E-sport

Due to the complexity of the method and our problems of finding data we changed course, to instead look at the role of luck in E-sport tournaments. As I’ve described above, surprise and suspense are concepts related to the way information is revealed. In order for there to be suspense in a match, there need to be a level of uncertainty about the outcome. So then the question becomes, where does this uncertainty stem from? When you are watching a football match, this uncertainty I believe can come from two sources. First from you not knowing which is the better team. If a game of fotball always resulted in the victory of the more skillful team, then any suspense or surprise must come from uncertainty about which is the better team. The other possible source of uncertainty comes from the fact that the game doesn’t perfectly measure the relative skill level of the players. Sometimes the better team loses a game, so there is a component of randomness in outcomes. This component we can call “luck”. Based on this idea, a game/sport/activity where luck have no part whatsoever, and where the skill of participants/players/teams doesn’t change much from game to game, would be very predictable. And even though there might be other reasons for observing this game, it wouldn’t be very suspenseful.

In the book “the success equation”, Michael mauboussin explain that while success in some activities are determined solely by chance (such as the lottery) and some solely by skill (playing a musical instrument for example), for most things in life both skill and luck have part in the outcome.

There is a lot of literature on the role of skill vs luck in different activities, mostly these researchers have studied games such as poker and chess. These papers often relate to the discussion of weather or not a game shall be classified and therefore also regulated as games of skill or of games of luck. Skill here is understood as to what extent the individual or player can influence the outcome of the activity or the game. One conclusion to draw from these studies is that while roulette and chess are easily classified, most games are not.

Instead of asking whether of not a game is a game of skill or of luck, a better question if when the game becomes a game of skill. If a player can gain even the slightest advantage by skill, then it will become a game of pure skill when playing an infinite number of games. So even the game of Rock-Paper-Scissors becomes a game of skill if you play enough matches.

In games where players compete against other players, skill is no longer an absolute characteristic but a relative one. What I mean by that is that how much of an advantage you get from your abilities depend on the abilities of your competitor. In professional sport leagues where all players are very skilled, the variance of skill is low. This causes luck to be more important to succeed. This is quite counter intuitive, that as everyone gets more skilled in the game, luck will have a greater influence on the outcome. So while many game becomes more of a game of skill when you play more matches, it becomes more of a game of luck when everyone gets more skilled.

Since we know how randomness behaves, we can measure to what degree skill and luck respectively determine success for different activities. In the book mauboussin does this for the five biggest sport leagues in America (baseball, basketball, soccer, ice hockey and american football).

Can this method be applied to E-sport tournaments? How much influence does randomness have on the outcome of these tournaments basically. The video game industry change so rapidly (some of the most popular games that are streamed at twitch, PUBG and Fortnite, hadn’t even been released a year ago) and both the audience and the players seem to be less loyal to one specific game or brand if you compare to traditional sports. For this reason, perhaps e-sport tournaments cluster together around the optimal level of luck-level on this luck-skill-continuum. this optimal level would then constitute the optimal level according to the audience. That is of course only a thought, perhaps e-sports are just as scattered as other sports. If this optimal level of luck involved in the outcome is related to the audience preference for suspense and surprise, or some completely different mechanism, I don’t know.

Just to test out the idea I tried it out on the ESL CS:GO 5on5 Open League Spring 2017 Europe . 422 team of five players joined the group tournament and each team played up to 7 matches, from which top advanced to an elimination tournament. Below you can see a histogram of all teams that played 5 matches and how many wins each team won. If the relative skill level of the competing team of each match would perfectly determine who won the match, then we would expect a flat distribution. While if each match was determined solely by randomness, say a coin flip, then we would expect a binomial distribution. what we see below is something in between, which suggest there is both skill and luck involved here.

Next I calculated the variance of luck and subtracted that from the total observed variance to estimate the variance of skill. When the number of matches a team play increase, the role of skill increase, but it’s around 50% for teams playing 5-6 matches each. The problem though is that I’ve not been able to find any good peer-reviewed sources for this method. For this reason, we had to change approach again, this time looking into happiness research, by suggested from our supervisor. I can’t say I’m super excited, but it’s only a bachelor thesis, so I’ll manage.

Economics in video games

Economics is the study of decision making by individuals, using mathematical models and empirical methods. One of the big problems of economics (and of all social sciences) is that we cannot conduct randomized experiments the same way as in natural sciences. Imagine a political science researcher proposing that for the next term in office in the municipality, a set of randomly chosen municipalities will be used to experiment with various not-so-democratic regime types. It’s easy to see why that wouldn’t be feasible. Instead, social science researchers have developed a range of advanced statistical tools to mimic the same mechanisms in order to find causal relationships.

Video game platforms, however, present a virtual environment where suddenly, it can be possible to conduct these social experiment. There are games where, hundreds of thousands of players interact with each other. And the data available (I presume) is far better than what we can collect about how people interact in the real world. Some of the games that exist not only allow the players to engage in trade with simple homogeneous goods with others, they contain advanced economies that mimic a range of elements of real economies.

I’m really excited about the entry of social science researchers into the realm of gaming. Hopefully I will be able to be a part of it. Enabling trade in games might sound easy, but there’s no one version of the market. For markets to function efficiently and smoothly, game developers need to think long and hard about what consequences to expect for different market design issues. My guess is that there will be a lot more game economists employed in game development in the future. Some while ago, I wrote a post about how to design a market in Pokemon GO, I will probably write more on economics in video games in the future.

Happy New Year!

A couple of months ago, I started an instagram profile about books on economics that I’ve read for anyone looking for suggestions. It’s a new year and a will continue to update every week. I’ve added the stream here at the blog and if you want to see more.

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Potternomics part two: What is magic?

In this blog post I present an economic perspective on what magic is in the Harry Potter saga and how the principles of economics can be used to analyse this society.  Since the big difference between wizards and muggles is the use of magic it seems to appropriate to write a post about what magic actually is. I hope you find this text interesting, if you have any questions or feedback, please send me a message or comment on this blog post. In an earlier post I discuss poverty and wealth in the wizarding world, that post can be found here.

(For detailed references and footnotes, please click here for pdf)


From different perspectives, we will view magic differently. If you were to ask a physicist, chemist or some researcher from any other natural science discipline to describe what magic in the wizarding world of Harry Potter is, they would perhaps tell you something along the lines of magic being “a means of willingly invoking the improbable behaviour of living or dead matter,” as Dr. Immo Garrn writes in a blog post where he makes an attempt to create a model for the physics of magic in the potterverse. He further discusses the process of performing magic as being a way to manipulate/transfer electromagnetic energy in different ways. In this post I want to instead present a view of magic from a social science point-of-view.

The study of economics is the study of human behaviour and society. The economist would therefore, if given the same question, describe magic from its role in society. In most respects, the magical population does not differ from the non-magical population. Both wizards and muggles (people without magical abilities) constantly find themselves in situations where they need to make choices taking into account the trade-offs they’re forgoing. The students at Hogwarts, to give just a few examples of the similarities of life choices in both societies, dwell over what subjects so study, what career to pursue and what quidditch team to support. The big difference between the muggle society and the wizarding one is the existence and use of magic in the wizarding society; it’s likely that this difference of technology can explain in some parts why the two societies have evolved so differently from each other in terms of economic, social and political institutions. For example, people hold different occupations, their cultural norms are foreign and the functions of their governments vary.

Magic’s role in society is what the economist would call a technology. In economics, technology has quite a specific yet broad definition, namely “The sum total of knowledge and information that society has acquired concerning the use of resources to produce goods and services.” Technology doesn’t refer to the actual computers, radar systems and wheelchairs we use, but rather the knowledge and know-how of the way we do things. The technology of a society therefore accumulates over time, as we learn better ways to do things. It’s a very broad way to look at technology I shall say. If, by trial and error, you conclude that folding the toilet paper is more effective than crumbling it when wiping your butt, then that discovery is to be considered a piece of technology since you have found a way to produce clean bums using less resources.

What differs the technology of the wizard society (i.e. magic) and the technology of the muggle society is not that either is superior to the other, they are basically different in kind. In some respects, wizards have more effective and cheaper ways to cater their needs and preferences. For example in transportation: wizards can travel long distances in only seconds via apparition, port-keys (similar to what we would call teleportation) and the floo network system (traveling via chimneys). Muggle technologies for travel, which include cars, escalators and planes, are extremely more expensive in terms of time spent when trying to get from point A to point B. Muggle technology however is vastly superior when it comes to communications. While wizards uses owls to send letters as their primary way to communicate with people in other locations, muggles have developed radio, telephones and the bloody internet.

When the technology in a society evolves, for example when there is a scientific breakthrough, we see increases of productivity. In a market economy where there is competition, productivity increases will transfer into lower prices on goods and services. Improvements in technology do not affect prices uniformly in the economy however. When machinery makes farming cheaper, this affects the prices of wheat but not equally the prices of newspapers. Relative prices (the price of a commodity measured in terms of other commodities) are not stable, but change in response to technological development. People might talk about prices being high or low, but what we actually mean is that they are high or low relative to what else we could spend that same money on.

I’ve read some attempts to calculate the exchange rate between muggle money and wizarding money (the currency used is called Galleons) by finding examples of commodities that are priced in the Harry Potter books which also exist in the muggle world and then compare prices. That approach, I argue, isn’t very useful exactly because the relative prices in each economy are different. If however trade would become established between the two economies, it would make a lot of sense to use this approach.

Since muggles and wizards rely on completely different technologies in their production of goods and services, the relative prices in each economy will differ a lot. This is assuming there is no trade between the two economies, otherwise some people would buy goods cheaply in one world and go sell them in the other world making a nice profit; at the same time pushing up the price of this good in the first economy, and pushing down the price in the other. The flow of goods and services between the muggle world and the wizarding world would continue until prices eventually converge so that it no longer would be possible to earn easy money this way.

There is very little interaction between muggles and wizards and therefore it’s not far fetched to assume that there’s little or practically no trade between them. When Harry joins the Weasley family to attend the quidditch world cup, even the muggle-enthusiast Arthur Weasley struggles with the muggle currency when he is going to pay for their accommodations, having to ask Harry for help. Reversely, muggles do not seem to have any knowledge of the workings in the wizarding world. They continue to utilize their inadequate muggle medicine, such as stitching wounds, and wizards seem to wish to keep it this way.

When the prices in these two economies converge, a lot of changes will occur in society. It will have more dramatic effects than just changing what goods people buy in the supermarket. Since the muggle economy is so vastly bigger than the wizard economy, the convergence of prices would probably mostly mean that the prices in the wizarding economy would adjust to the prices in the muggle economy. Let’s imagine life in the wizarding world since the changes will be more dramatic there. In areas where magic is superior to muggle technology, prices of goods and services will rise because producers will suddenly have a much bigger market to sell to, and hence they will raise their prices in order to make bigger profits. In areas where muggle technology is superior to magic, prices will fall because a lot of cheaper muggle-made goods will be imported to the wizarding world. This will inevitably put some producers out of business, raising the unemployment of the wizards and witches employed in those fields of work. In the short term, there will be both winners and losers on the production side when trade is established.

In the long run though, there will be a shuffle in the labour force. Fewer wizards will work in the areas where muggle techniques are better, and more of them will work in the areas where magic is finer. These dynamic effects on the production sectors can be seen when trade is established between countries in the real world who didn’t trade before. This is why most well developed countries outsources a lot of manufacturing and farming to less developed countries. When more and more wizards change occupations and start working in sectors where wizards have a comparative advantage, the price on these stuff will go down a bit again.

So, is this on the whole good or bad? The way the price system works is that it will incentivise people to focus on the things they do best relative to other people; I wrote a post about this earlier for the one who is interested in learning more. This is where the biggest gains of trade are to be found: with increased specialization and division of trade across economies, the overall welfare will be raised. But, if there really is that much to gain from trade, why do the wizards choose to abstain from trading with the muggles? Well, that is not a question of what makes economics sense, but what makes good politics. All over the world we see countries enacting protectionist policies, closing their borders and creating barriers to trade with foreigners. Sometimes they claim it is to save jobs from being outsourced abroad or to help the domestic economy and sometimes they claim these trade embargos are set up to punish foreign countries or their leaders. The question of why this makes good politics is a subject I plan on writing a post about later.

In this post, I’ve presented an economic view of magic in the world of Harry Potter. The wizarding community differs from the muggle’s by the type of technology they use. Since the two economies are isolated, their relative prices differ, which is why we cannot calculate the exchange rate between muggle and wizarding currencies based on examining prices in each economy. If trade were to be established between the the two worlds, a higher degree of specialization and division of labour would allow for increases in wealth in both societies. Why the wizarding community chooses not to, however, is a question about politics, not economics. I hope you found this post interesting, if you have any questions or objections, please don’t hesitate sending me a message or comment on my website!

Big thanks to Collin Peeples for valueble feedback 🙂

Politics of Harry Potter and the Prisoner of Azkaban

In this post I analyze the political system of the wizarding world of Harry Potter after reading the first three books in the saga. We don’t know much about the political system in the magical society because it’s not explicitly described. But we can from the story, inferring from the behaviour of government agencies and government employed characters, draw conclusions about the political institutions in the magical society. In an earlier post I wrote about wealth and poverty in the wizarding world from an economic perspective titled “Potternomics part one: how do wizards get rich?”. More blog posts about the economics and politics in Harry Potter are to come.

(For detailed references and footnotes, please click here for pdf)



The Ministry of Magic is the equivalent of a government in magical Britain. The wizarding world is a society existing parallel with the non-magical society, in the Potter-books referred to as the muggle world. There is little interaction between the muggle and magical societies in Britain, in fact, most muggles are completely unaware of the existence of magic and the wizarding society.

In the first two books, we don’t get to know much about the Ministry. We know of it’s existence after Harry is introduced to the magical world; Hagrid then explains that the Ministry’s main job is to keep the magical world secret from the muggles. The headmaster of Hogwarts School of Witchcraft and Wizardry, Dumbledore, is highly respected by the people at the Ministry, which is why he is allowed to run the school without much interference. In the second book, it was not until there had been four attacks on students that the Ministry did step in. However, the Minister for Magic, Cornelius Fudge (head of the Ministry), didn’t seem too keen on investigating the cause of these attacks. Instead he decides to send the school groundskeeper Hagrid to prison, saying that he is “under a lot of pressure,” and he’s “[g]ot to be seen to be doing something.” Fudge doesn’t appear as an evil character, but this event neatly illustrates the not-so-romantic behaviour of the government in magical Britain.


The story in the third book

In the beginning of the third book, we learn about a person with the name of Sirius Black escaping from the high-security magical prison, “Azkaban.” Black is considered a very dangerous criminal, and the news of his escape spreads fear in the magical society. It is reported in the newspaper, the Daily Prophet, that Minister Cornelius Fudge goes so far as to even inform the muggle Prime Minister about the crisis, and that the muggle press is used to get people to report any sightings of Black without revealing that he’s a wizard.

Throughout the whole book, the Ministry conducts a large-scale search operation to catch Black but without much luck. In addition to the Ministry appealing to the public for tips on Black’s whereabouts, Arthur Weasley, working in the ‘Misuse of Muggle Artefacts Office,’ tells us that all Ministry employees were pulled off their regular jobs to help in the search.

The most severe measure taken by the Ministry in the search, however, was the deployment of hundreds of undead creatures called dementors to guard the entrances to the wizarding school Hogwarts, and to patrol it’s nearby village, Hogsmeade. Dementors are described as the most terrifying creature in the magical world, feeding by draining the happiness of humans. During his first encounter with a dementor, Harry resultadely collapsed from the draining in a horrid scene. The Dementors are usually employed to guard the magical prison, Azkaban. Hagrid describes being held there with constant draining by the dementors as a most horrible experience. “Yeh can’ really remember who yeh are after a while. An’ yeh can’ see the point o’ livin at all. I used ter hope I’d jus’ die in me sleep …”.

The Ministry does in fact not seem to have full control of the dementors. The dementors approach and enter the Hogwarts train in the beginning of the school year, frightening and draining on the hundreds of students onboard. Later in the school year, over a hundred dementors advanced onto the school quidditch stadium during a match, almost resulting in Harry’s death. An event that infuriated the headmaster, Dumbledore, who had resolutely refused to give dementors permission to enter the school grounds.

The Ministry gave the dementors permission to use, as Professor Lubin expresses it, “their last and worst weapon”: the dementor’s kiss, on Black if they were to find him. When the kiss is performed, the dementor sucks the soul out of their victim and it is described as a fate worse than death.

The Minister for Magic, Cornelius Fudge, says the dementors are there for the people’s protection and safety; although one can definitely question if these measures really were proportional to the perceived danger Black posed, or if the Ministry did more harm by their efforts than they did good. In retrospect, we know Black was innocent of the crimes he was imprisoned for and didn’t really pose any danger at all. It can also be mentioned that this is not too long after a war within the wizarding community and a lot of criminals failed to be trialed; consequently still being out there. Why the Ministry focuses so much effort on this one criminal seems like a strange priority.

Not only does it seem that the measures of the Ministry are an overreaction and out of proportion, the Ministry was also very unsuccessful in their search. Not only did Black succeed at hiding from the Ministry, he even managed to sneak into the heavily guarded school at multiple occasions during the school year without getting caught. Of course, Black is an animagi meaning he has the ability to transform into an animal (in Black’s case into a big black dog). Having developed the ability without reporting it to the Ministry of Magic is a punishable crime; it is reasonable to believe it’s a very rare ability, since only 7 wizards have been registered the last century.

Even if it’s a rare ability to have, should’nt it at least have struck someone at the Ministry as a possibility that Black was an animagi? In the fourth book of the series, Hermione works out that the reason why paparazzi reporter Rita Skeeter was able to spy and eavesdrop on private conversations to dig up gossip is that she was an unregistered animagi, possessing the ability to transform into a beetle. If a fourteen year old girl can figure out that Skeeter could move around undetected thanks to being an animagi, how come no one at the Ministry even though of the possibility the same could be the case about Black?

In the fourth book of the series, Harry Potter and the Goblet of Fire, Harry has no problem communicating by owl post to Sirius (who still is on the run from the Ministry), even though Sirius is in hiding in another country and Harry has no idea where he is. If owls don’t have any difficulty delivering mail to people anywhere on earth even if the sender doesn’t know where they’re sending it to, finding people shouldn’t be too hard for the Ministry.

Some possible reasons for their failure is basically that the Ministry is a terribly inefficient organisation or that the people working there simply are incompetent. Or what if they didn’t really intend on catching Black? Perhaps the purpose of these large scale operations were something else than what was stated? Government agencies might not always be truthful, especially in countries that don’t have democratically elected officials. In a democracy, we can at least hope that politicians will try and enact the policies they believe is good for the country, because they otherwise would be voted out of office by the citizens. When leaders don’t need the support of the public to stay in office, things tend not to go too well historically.

The problem is not really that the wrong people become leaders. Henceforth the answer is not getting “the right people” in political power. Even the most well-meaning, selfless and virtuous person must, in order to use a position of political power to do good, first get in a position of power. A person with political ambitions must have the pursuit for power (or when in a position of power, to maintain that position) as their first priority. Because if that’s not the case, someone else less virtuous and more elastic in their morals will take their place in office.

So, how does one get in a position of power in the magical world? We don’t know much about how Ministry officials are appointed, but we know enough to conclude that magical Britain is not a democracy. In the first Harry Potter book, we find out that the head of the Ministry, the Minister for Magic, is chosen, not elected.The answer is instead gaining the support of some key political players. Loyalty is the currency of political power in the same way that money is the currency of economic power. Losing the support of these unknown yet influential key players means you’re kicked out of office. This is what happens later in the series when Cornelius Fudge in his own words is “sacked” as Minister for Magic and replaced by the more ruthless Rufus Scrimgeour without the mentioning of an election or any campaigning for the office.

It is reasonable to assume that the interest of these key players influences the behaviour of the Ministry. The fact that we don’t see a change of leadership in the Ministry after such a fiasco of catching Black indicated that the key players in fact might not have been too disappointed with Fudge’s actions. The hunt after Black spread fear and panic in the magical community, normalised intrusive and controlling measures and created acceptance for evasive government intervening in people’s lives. When people feel unsafe, they will more easily accept or perhaps even demand greater government control and security services.

It is not at all unlikely that this would be in the best interest for the political elite, whom can then use this opportunity to increase the size and authority of the government; in the process increasing their own influence and power. We know that a lot of former death eaters are in positions of power in the magical society, such as Lucius Malfoy. These people would of course know Sirius Black was no ally of theirs, and they would probably know he was innocent. His escape, however, created an opportunity they could take advantage of.

(Spoiler warning ahead)

Towards the end of the book the story takes a twist and we find out that Sirius Black in fact is innocent of the alleged crimes he was sent to azkaban for, and that he escaped to take his revenge on Peter Pettigrew who had betrayed him and the Potter family, resulting in the death of Harry Potter’s parents. Black gets caught, but with the help of headmaster Dumbledore, Harry and Hermione, he escapes yet again.


There are a lot of subjects linked to the topics of politics and power in the Harry Potter books. For example, in the third book, Harry Potter and the Prisoner of Azkaban, we observe the power struggle between the corrupt Lucius Malfoy and the good and honest Dumbledore, the disobedience and distrust towards the legal process when Dumbledore, Harry and Hermione liberate Black from captivity, and how the desire for power brings Peter Pettigrew to betray his friends. In this post I have focused on analyzing the political system in the wizarding world in the third book.

The Ministry of Magic gives an appearance of incompetence or malice by being incapable of, or unwilling to, conduct the search operation for a dangerous criminal to which they claim to be so devoted. This is not a result of an accidental appointment of bad political leaders but a natural consequence of the design of the political system in the wizarding world. It is obvious that the Ministry does not have the interest of the public in mind, even if they claim so, and we should not assume so when analyzing the behaviour of the government in Harry Potter. What we see is the slow progression of the Ministry of Magic into a more authoritarian state regime, disguised as a concern for the safety and security for the citizens. This transition will be even more visible (and darker) in the books following.

Why economists claim we don’t smile enough

As the saying goes, smiling is contagious. People around us benefit from us smiling. Sounds like a great thing right? But an economist might for this very reason make the claim that we don’t smile enough.

In economics, we are interested in how individuals make choices, and we assume that they act in their self interest. When it comes to smiling, sure they might care a big deal about the people around them. However they will fail to fully take into account how their actions affect others. Since smiling affects those around you positively, the economist would claim you are undersupplying smiles.

Smiling has what in economics jargong is called “positive externalities”, another way to say that it benefits someone other than yourself basically. If people to a greater extent took these positive externalities into account when deciding the amount of smiles to supply, then the overall well-being could increase. It sounds perhaps a bit weird to say that there is a shortage of smiles, but you probably come across people during a day that could have benefited greatly from receiving a smile. How could you have known that you missed this opportunity, plus you don’t want to just stand there looking like a fool smiling for no reason right? Their potential benefit in the form of higher happiness will not be taken into account when you choose an amount of smiling.

This is not to say that more smiling is always better according to the economist. If your smile would scare or make people around you uncomfortable then perhaps you are oversupplying smiles. Walking around smiling all day might also hurt your jaw, causing you more harm than it benefits those around you. The economist only acknowledges that there is a level of smiling that maximizes the overall happiness in society, it is not probable that this level is neither smiling all the time, nor not smiling at all. But he has reason to believe that we are supplying bellow that level as it is right now.

So, is there something we can do to solve this shortage of smiles? In theory, sure. Economists love to play these kinds of games trying to give policy recommendations that will correct these “market failures” and there are probably economists that have pondered this issue of how to reach an optimal smiling level. Subsidies are a popular way to try and “solve” shortages of goods with positive externalities.

The problem here is that we can’t really know what the optimal amount of smiling is. And trying to monitor, or even control how much people smile sounds like something only an extremely tyrannical government would attempt. We must not forget that people in government are people too. Just because someone is a politician or employed by the government doesn’t make them uninterested in advancing their own self interests. If economists would acknowledge this they probably would be more careful giving those kinds of recommendations for government policy. Perhaps we shouldn’t meddle with how much or how little people smile. Maybe it’s enough if we just remember that “smiling is contagious” to increase our production of smiles.

Economics of dating platforms

This post is about some special aspects on the economics around dating platforms. I will discuss how price discrimination can benefit everyone, the rare phenomenon of increasing marginal returns and how incentives might make dating platforms choose to be bad at matching people with each other.

Single people use dating services (such as Tinder, Grindr, among many many others) to find a partner. When they find a good match they will be off the market and stop using the platform. In other words, people use dating apps in order to find a reason to stop using them. The issue for these dating platforms is that it’s not easy to get paid for matching people with potential partners. This being said, they can’t just straight copy a business model from other companies who provide similar matching services such as matching companies to potential employees; or for another example, matching residents with housing. Different dating services use distinctive models to bring in revenue. They might charge the user to be able to use the service, have ads on the platform or allow people to use some simpler version of the app for free and then offer a premium service costing money.

It’s important to notice that a company that wants to maximize it’s profits is not necessarily a company that seeks to provide the best matchmaking service. If the company gets their revenues from ads on the platform then they want as many users as possible, not matching as many people as possible who will then leave the platform. At the same time, if the platform doesn’t manage to match any new couples, people will leave for the same reason (given that they are informed of this). So the optimal matching-strategy for the company will be different depending on what their income scheme looks like. So, if you are not paying for a service you are using, that gives you a hint that you are not the customer in their business, you are the good that they are selling. This is not to say you are being fooled, it might still be a great app if the incentives for the company are good.

Giving people access to a simple version of the app and then offer a premium version with additional features is a kind of price discrimination. The price difference obviously can’t be explained by difference in production costs, it is a way to separate out those who are willing to pay more from those who are not. If the company only had the best version of their dating platform, and charging everyone the same price, not as many people would use the app. It is therefore better for them (as in giving them more revenue) to try and filter out those willing to spend money on the dating service by offering a premium service. The free riders get to use the platform they otherwise would choose not to use so they are winners too under this model. The premium members are better off too since there are more people using the platform than before, making it a better app for finding a date. A win-win-win situation in other words.

A second aspect of dating platforms that is a bit special derives from the fact I just mentioned above. That the value of the dating service increases with the number of users. The individual user will be willing to pay more to use the app the more people are on the platform. This influences what kind of income scheme the company chooses to go with, this is why most dating services offer some free features, to get as much people to use the platform as possible. In economics jargon this concept is called increasing marginal returns. In our digital age this is becoming a more and more common phenomenon. The strength of social media platforms such as facebook, snapchat and instagram comes from the fact that so many people are using them. This changes some of the dynamics of the economy. If you succeed in getting users to your platform, you will win big time. But it’s also a lot more difficult for outsiders to compete with these giants, since only the very best get all the customers. Their monopolistic situation is however fragile, and big companies might have difficulties readjusting when circumstances change (see companies like Nokia, Microsoft and Zodac). Something small entrepreneurs can take advantage of in order to become the new king of the hill.

Dating platforms differ in interesting ways from other kind of services that people use. By thinking of what incentives motivate the actions of these companies helps us understand the reasons for their success and the mechanisms of the economy. Thanks for reading, if you have any comments, questions or other feedback, please let me know!

Big thanks to Collin Peeples for great feedback

Employment for Pokemons

A while back I wrote a longer piece on how to design a market system within the game Pokemon Go, and what aspects that I think will determine what the effects will be when the update comes. In this second blog post about economics related to the game I discuss how society in pokemon universe would be like. And what could be an awesome way to development the game further!

Let’s imagine living in a world with pokemons, very intelligent animal-like creatures with sort of super power. It does not appear to me why having them fighting each other would be such a huge thing in this world as the pokemon games make it appear. Sure there are humans forcing animals fight each other for our entertainment in our society too. But one can hardly claim it’s a big thing in the developed parts of the world. Since pokemons are intelligent enough to understand human spoken language and express emotions I doubt the practice of having pokemons fight to exhaustion or death wouldn’t engage movements fighting for pokemon rights.

From an economic standpoint there is a lot to gain from trade with pokemons, trade defined as voluntary transactions from both parties. Or if the enslavement would persist: having them do more productive tasks. The pokemons might lack the intelligence to comprehend the concept of trade, like most animals in our world. In any case, there might not be any moral reason to treat pokemons differently than we treat other animals, as property.

We see in the pokemon movies and tv-series that there actually are a lot of work that can be done by pokemons. For example there are pokemons who work as nurses in hospitals, assists with transportation services and deliver mail. Since a lot of pokemons possess supernatural abilities such as being able to create fire, electricity or poison etc. there is in fact big gains in employing pokemons to stuff that humans can’t do or do at a high cost.

Perhaps my observation sounds obvious, so let’s go into how employment for pokemons could create an interesting dynamic element in Pokemon GO. In the game there are places called Pokestops where players can receive free items such as pokemon balls and medicines. Instead of giving out these items for free, imagine these depots instead offered players quests to complete in exchange for items. Perhaps at a poke stop, the player meets a human asking for help with a task, say, building a wall or fishing for food. The player can then lend one of it’s pokemons to the person in need for an amount of time. Building a wall or carrying heavy thing might call for a strong pokemon while for fishing you might want to employ a water pokemon. Depending on how skilled and fitted for the task the pokemon is, the player is paid accordingly.

This would give players a reason to gather good pokemons of different elements and with different abilities. As the game looks today, the only reason to gather strong pokemons is to build a strong compating team, and for that task there really is only a handful of pokemons that are really valuable. I would say this is a fairly simple element that would make the game more dynamic and interesting for the players. Hopefully some game developer from niantic sees this post and makes it reality.

Potternomics part one: how do wizards get rich?

Thinking about economic aspects of the Harry Potter universe made me wonder, why are there poor people in the wizard community? The Weasleys are perhaps not very poor by the standards of muggles. But the ability to do magic could certainly be very lucrative if you lived in the muggle society, so in theory it wouldn’t be difficult for a wizard living among muggles to become very wealthy. Why then doesn’t all poor wizards migrate from the wizard community to the muggle one in order to increase their standard of living? If that were the case, then the poorest wizard in the magical community should be at least as wealthy as he would be living as a wizard in the muggle world. This of course assumes it’s easy to migrate to muggle britain from magical britain as a wizard, which might not be true due to guvernment regulations but the policies of the ministry in magical Britain will be discussed in a later post.

Even if we might be able to think of a range of creative ways to make money using magic, it’s not necessarily the case that an actual wizard could execute or even come up with any of those ideas. Wizards don’t have the same educational background that we muggles have. Almost all subjects in the Hogwarts corriculum are practical ones, for example charms, potions and defence against dark magic (full list here). And most of the time in class, they’re doing exercises to practice performing different magical skills. The students are teached how to do magic, but not to understand how or why magic actually works. For them, magic seems to be just as mysterious as it is for readers of the novels. No student, not even the star scholar Hermione is encouraged to pursue a scientific career or even to study further after graduating from hogwarts. Snir and Levy (2014) discuss the educational system in Harry Potter in more detail for the interested.

From this it’s reasonable to think that someone who grew up in the wizard society would struggle in the technically advanced muggle society. In other words, the claim that any wizard should be at least as wealthy living in the wizard community as they would have been living in the muggle one might be a correct one. Since wizards don’t reveal their magic to muggles we can’t actually know for sure whether there are wizards living among us in secret or not. But, lets imagine that there are, where then would we expect to find them? What kind of jobs would they occupy?

Magic can be very helpfull doing a lot of things. It can be used to change the shape or properties of an object, heal wounds and transport humans to give just a few examples. We can understand magic as a technology from the function it serves in society (more on this in a later blogpost). For many of the things wizards use magic for, the muggles have their own solutions.

In addition to their lack of knowledge on muggle technology and science being a limitation for them when choosing occupation, they also cunduct their business in secrecy as mentioned before. So even if wizarding healing practices could potentially complement muggle medical science in improving the quality of healthcare, wizards probably doesn’t work at hospitals since the risk of being exposed is too high. The same is true for all occupations where it would be difficult keeping magic hidden from the muggles.

It’s less likely that wizards will work in service occupations, especcially those that recuire technical knowledge. Perhaps farming, mining, fishing and forestry are sectors where wizards and witches could practise magic without risking detection. The problem with these sectors (collectively called the primary sector of the economy) perhaps is that muggles already are very productive in these areas thanks to technological avancements such as fertilizing and pest controls, genetic manipulation of breeding animals and advanced harvest and mining machinery. manufacturing (the second sector of the economy) is another possibly lucrative area for those with the ability to do magic.

In the end, things come down to what economists call comparative advantage. Which says bluntly that you should focus on producing goods or services that you are best at relative to what others are good at. And then trade with others. This is somewhat common sense, if you’re good att cooking but hate making the dishes, while your partner is a terrible cook but enjoy cleaning, then both of you would be better of if you split up the chores at home instead of both doing half of each, wich would mean you would do something you hate, and your partner would do something he or she is terrible at.

However the theory of comparative advantages makes a counter-intuitive claim. Even if a wizard is better at doing everything compared to a muggle, they would both benfit from trading with each other. Just think of a wizard healer and a muggle doctor at a hospital. The wizard healer might be able to preform twice the amount of surgeries a day compared to the muggle doctor. But working with emergency care, the wizard might be ten or twenty times more efficient at saving lifes since speed is crucial and the wizard healer is much faster getting to emergency situations by flying or teleporting compared to the muggle doctor who loses valueble time traveling in an ambulance. Even if the wizard is better than the muggle doctor in preforming surgery, to save as many lifes as possible we want the wixard to spend all his time out in field.

The claim is true of countries too, so even if a country say magical britain, is better at producing every product or service (as in producing at a lower cost) than a second country say muggle britain. They would both benefit from focusing on producing goods where they have a comparative advantage and trading with each other. This is the key to understanding how the market economy works and why the division of jobs, specialization and trade has lead to such amazing economic progress and wealth increases in the world.

Wizard might not know the norms and institutions of muggle society. But imagine you getting the magical abilities that wizards have, how would you use them to get rich? I’m assuming that you have moral values that prevents you from using magic to hurt of enslave people. And don’t forget that the statute of secrecy forbids you from revealing magic to muggles. The answer to the question is perhaps not that interesting, but trying to answer it makes us think about how the market economy works, so if you have any fun ideas, please leave a comment or send me a message.


Snir, A. and Levy, D., 2014. Economic Growth in the Potterian Economy. The Law and Harry Potter, edited by Franklin Snyder and Jeffrey Thomas, Forthcoming.

Why even rational participants might distort prices in betting markets

The other day I read an interesting paper that gave me a thought on why betting markets might become biased even if participants act rationally to maximize their utility. In the paper suspense and surprise (J Ely, A Frankel, E Kamenica, 2015), the authors create an economic model for suspense and surprise (sounds cool right?!) with which they examine different sports, plots in novels and races for political offices. From this I started reading some more on the literature and this quote from A Caplin and J Leahy (2001) caught my eye:

[w]e define suspense as the pleasure experienced immediately prior to the anticipated resolution of uncertainty, and posit that it is positively related (up to a point) to the amount that is at stake on the outcome of an event. This provides a simple reason for agents to bet that their emotional favorite will win in a sporting event. By betting on their favorite, agents increase their stake in the outcome, thereby heightening feelings of suspense


This makes intuitive sense of course, when people bet on their favorite team the game becomes more exciting and thereby increasing their utility. From the public choice literature on rational ignorance we know that since any individual voter has a very low probability of changing the outcome of an election, people don’t have the incentive to consume political news in order to make a good decision on election day. The reason instead to why people inform themselves on political issues is non-instrumental – it’s entertainment such as watching sports or reading novels. And therefore they don’t have any strong reason not to be biased in choosing what party to cheer on.

The answer to the question why people vote is probably similar to why people participate in doing a wave or cheer in a football stadium to show support to their favorite team. It’s not that sport supporters think that their participation in some way will affect the athletes to perform better. But we are social beings and like doing things in group.

This gives an explanation to why prediction markets might be biased when people with strong partisanship bet on political events. But I say might because even if it’s the case that some people act this way, it will not affect the price on the prediction market as long as the marginal trade in the market is motivated by rational actors. As J Wolfers and E Zitzewitz (2004) writes this about why irrational betting participants won’t distort the signals on a betting market, but so is true for the people betting for suspense. So even if a lot of democrats and a lot of republicans bet in order to enhance their feelings of suspense, if there are some people in the middle that act in order to win money (and there is high liquidity on the market), the predictions that derive from betting markets will be good forecasts.


Caplin, Andrew, and John Leahy. ”Psychological expected utility theory and anticipatory feelings.” Quarterly Journal of economics (2001): 55-79.

Ely, Jeffrey, Alexander Frankel, and Emir Kamenica. ”Suspense and surprise.” Journal of Political Economy 123, no. 1 (2015): 215-260.

Wolfers, Justin, and Eric Zitzewitz. ”Prediction markets.” The Journal of Economic Perspectives 18, no. 2 (2004): 107-126.