When a First Pick Isn’t the Best Pick
By RICHARD H. THALER
NYT
AS March Madness winds down, it’s time to turn our attention to the next major sports event on the calendar. That’s right, the National Football League draft, now a three-day extravaganza with the first round broadcast in prime time on April 22.
Spring is a fitting time for the draft, because hope springs eternal for fans of downtrodden teams. The rules of the draft specify that teams can choose according to their won-lost records from the previous year, with the worst teams choosing first. The idea is to give the bad teams the early picks to help them become winners.
As it turns out, however, the draft does not play the Robin Hood role particularly well. Indeed, I have written a paper, recently revised, on this subject with Cade Massey, a professor at the Yale School of Management. We found that the teams choosing early in the draft generally don’t, in fact, get the players that provide the most value per dollar. Our paper is titled “The Loser’s Curse” because we discovered that the first pick in the draft is, on average, the least valuable in the entire first round.
That surprising result has implications not only for football, but also for any domain where organizations try to select talent, whether C.E.O.’s or their own “rookies” — newly minted graduates.
Our analysis pivots around the idea that while there is an active trading market for N.F.L. draft picks, the market places too high a value on picking early. A team that wants to select a player before its turn can offer another team a deal in order to “trade up.” Over time, teams have come to agree on the price of such trades by resorting to a table now universally known as the Chart, which assigns a value to each pick in the draft. Alas, the Chart has the “wrong” prices.
(More here.)
NYT
AS March Madness winds down, it’s time to turn our attention to the next major sports event on the calendar. That’s right, the National Football League draft, now a three-day extravaganza with the first round broadcast in prime time on April 22.
Spring is a fitting time for the draft, because hope springs eternal for fans of downtrodden teams. The rules of the draft specify that teams can choose according to their won-lost records from the previous year, with the worst teams choosing first. The idea is to give the bad teams the early picks to help them become winners.
As it turns out, however, the draft does not play the Robin Hood role particularly well. Indeed, I have written a paper, recently revised, on this subject with Cade Massey, a professor at the Yale School of Management. We found that the teams choosing early in the draft generally don’t, in fact, get the players that provide the most value per dollar. Our paper is titled “The Loser’s Curse” because we discovered that the first pick in the draft is, on average, the least valuable in the entire first round.
That surprising result has implications not only for football, but also for any domain where organizations try to select talent, whether C.E.O.’s or their own “rookies” — newly minted graduates.
Our analysis pivots around the idea that while there is an active trading market for N.F.L. draft picks, the market places too high a value on picking early. A team that wants to select a player before its turn can offer another team a deal in order to “trade up.” Over time, teams have come to agree on the price of such trades by resorting to a table now universally known as the Chart, which assigns a value to each pick in the draft. Alas, the Chart has the “wrong” prices.
(More here.)
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