This is an actual scholarly paper written by a Duke University professor. It's long, and has lots of big words, so what I'm going to do is:
1)Post the abstract.
3)Post some excerpts from what our discussion group had said about this article.
As always, you, the reader, will have to decide.
The Abstract:
A question of increasing interest to researchers in a variety of fields is whether the incentives and
experience present in many “real world” settings mitigate judgment and decision-making biases. To
investigate this question, we analyze the decision making of National Football League teams during their
annual player draft. This is a domain in which incentives are exceedingly high and the opportunities for
learning rich. It is also a domain in which multiple psychological factors suggest teams may overvalue the
“right to choose” in the draft – non-regressive predictions, overconfidence, the winner’s curse and false
consensus all suggest a bias in this direction. Using archival data on draft-day trades, player performance
and compensation, we compare the market value of draft picks with the historical value of drafted players.
We find that top draft picks are overvalued in a manner that is inconsistent with rational expectations and
efficient markets and consistent with psychological research.
OK, simple English now: Teams overvalue the right to choose. More on that later. Now, as promised, the link to the entire article. If you're a good reader with a good education, this is about a 4 beer read. If you're hooked on phonics, you might want to break it up into a couple of days. And it's got lots of hard math.....you know, the kind with a lot of Greek letters instead of numbers. If I were you, I'd skip the link and just read the analysis I'll post later, but it's up to you. Freedom of choice is what made this country great.
http://faculty.fuqua.duke.edu/~cadem/bio/massey%20&%20thaler%20-%20loser's%20curse.pdf
Now, here's some of the discussion we had about it:
Key here is "Overvalue the right to choose." Their reference to the NYG orgasm over Eli Manning fits here. That’s where TT could parlay our #5 overall into a bonanza if the right player were there. It also means that our win against the Seahawks in the finale was costly indeed….massively so, as you'll see below and especially if you read the report.
This is where I think the psychology of GMs comes into play--where some GMs so crave the desire to move up for a certain player that they'll do it even if it makes no sense to do so.
NFL teams face exactly this kind of task when they predict the future performance of college players – they must combine evidence about the player’s ability (his college statistics, scouting reports, fitness tests, etc.) with the prior probabilities of various levels of NFL performance to reach a forecast. For example, over their first five years, players drafted in the first round spend about as many seasons out of the league (8%) or not starting a single game (8%) as in the Pro Bowl (9%). To the extent that the evidence about an individual player is highly diagnostic of a player’s NFL future, prior probabilities such as these can be given less weight. However, if the evidence is imperfectly related to future performance, then teams should “regress” player forecasts toward the prior probabilities. If teams act as Kahneman & Tversky’s subjects did, they will rely too heavily on evidence they accumulate on college players. Indeed, to be regressive is to admit to a limited ability to differentiate the good from the great, and it is this skill that has secured NFL scouts and general managers their jobs.
Check out that stat about the 1st five years….scary.
In the final months before the draft almost all players are put through additional drills designed to test their speed, strength, agility, intelligence, etc. While one might think such information can only improve a team’s judgment about a player, the research just described suggests otherwise. Rather, as teams compile information about players, their confidence in their ability to discriminate between them might outstrip any true improvement in their judgment.
This paragraph appeared in the section entitled “Overconfidence,” in which an assertion is made that people’s thoughts and judgments about a player are given more weight than fact--ie: human bias. To this point, are they referencing the “workout warriors” that people fall in love with above?
Harrison & Bazerman (1995) point out that non-regressive predictions, the winner’s curse, and expectation inflation have a common underlying cause – the role of uncertainty and individuals’ failure to account for it. The authors emphasize that these problems are exacerbated when uncertainty increases and when the number of alternatives increase. The NFL draft is a textbook example of such a situation – teams select among hundreds of alternative players, there are typically many teams interested in any given player, and there is significant uncertainty about the future value of the player.
Other than trying to reduce the uncertainty in their predictive models (which is both expensive and of limited potential), teams have little control over these factors. If teams recognize the situation, they will hedge their bids for particular players, reducing the value they place on choosing one player over another. But if they are susceptible to these biases, they will “bid” highly for players, overvaluing the right to choose early.
In other words, the draft is a crapshoot and you shouldn't have an orgasm over any one player because the VALUE isn't worth it in almost EVERY documented instance.
Their analysis on trading, which I recommend everyone read (even though the formulas and statistical complexity of their analysis is staggering), is fascinating. I’ll try to summarize here.
(see part 2)
