Unlike his neighbors, George Washington, Thomas Jefferson, and James Madison, founding father George Mason has rarely gotten his props from historians and the public. Until recently, the same could be said of the university bearing his name. But the advancement of Mason's basketball team to the NCAA's Final Four is only the school's latest surprise win. The GMU economics department—which didn't even award Ph.D.s until 1983—has two Nobel Prize winners on its faculty. The law school ascended to the first tier several years ago, a striking achievement for a new program that 10 years ago was being run out of an old department-store building. What's remarkable is that GMU's freewheeling basketball team and its free-market academic teams owe their successes to very similar, market-beating strategies.
GMU has excelled on the court and in the classroom by daring to be different. Its basketball team and academic programs began with the (correct) assumption that they couldn't hope to compete against the top schools in their fields—say, Harvard Law School or the Duke Blue Devils—by directly imitating their methods. GMU lacks the resources and reputation to recruit McDonald's All-Americans or Alan Dershowitzes. So instead, GMU has hunted for inefficiencies in its markets. Coach Jim Larranaga follows the Moneyball model of recruitment: hunting for the undervalued players—the ones who everyone else thought were too short, too thin, or too fat—and then building them into a team. In its astonishing defeat of UConn, GMU's players were giving away 4 inches at nearly every position.
Picking undervalued players wouldn't be possible if the market for jocks worked perfectly. In an efficient market, jocks—like stocks—should be valued no more nor no less than what they are actually worth. So, why isn't the market efficient?
One reason is that coaches who take chances on oddball players risk making themselves look foolish. A coach who goes after the same jock that everyone else wants, or an investment analyst who picks the same stock that everyone else recommends, at least can't be made to look worse than average. Herd behavior means that unpopular opportunities remain unexploited. An unusual coach who's willing to look unfashionable with the in-crowd has a chance to excel.
This is also the idea behind GMU's free-market-oriented economics department. The department got started with a heretical premise: The academic market is inefficient, so how can we exploit it? GMU knew it couldn't afford to be a first-class MIT and didn't want to be a second-class MIT, so successive chairs of the department, backed by entrepreneurial university presidents George Johnson and Alan Merten, looked for unexploited opportunities.
James Buchanan, GMU's first Nobel Prize winner, has never had an Ivy League position and indeed he has never taught above the Mason-Dixon Line. Gordon Tullock, a potential future Nobelist, has no degree in economics and took only one class in the subject. Vernon Smith, who moved his team from the University of Arizona (again, no Harvard) to GMU in 2001, had to fight to get people to treat experimental economics as more than a cute parlor game.
In the academic market, herd behavior is compounded by political correctness. In the 1960s, James Buchanan and Gordon Tullock were joined at the University of Virginia by Ronald Coase (who would later win his own Nobel). But the university administration and powerful organizations like the Ford Foundation thought their free-market ideas (limited government, tax cuts, selling radio spectrum!) were disreputable, and they worked hard to push them out of the university.
From the 1960s into the 1980s, a small university such as GMU could hire conservative and free-market thinkers of true genius for the same kinds of reasons that, in the mid-1960s, a middling school like Texas Western University could recruit some of the best basketball players in the nation, so long as they were black, and win the 1966 NCAA championship. Conservative and free-market economists were so undervalued that GMU could afford the best of them.
Today, blacks are no longer undervalued in the market for basketball players, and neither are free-market economists undervalued in the market for university professors (even if free markets remain undervalued in the world at large). As a result, the George Mason economics department must work ever harder to pick winners.
GMU remains an underdog in both basketball and economics. But Coach Larranaga has a plan to succeed in the long term and so do GMU's professors. Click