Mickey Kim
Mickey Kim
Both the NFL Draft and the stock market provide researchers with vast amounts of data to analyze judgments under uncertainty and decisions under risk. Research will help us understand how NFL general managers and investors make choices when “resources are at stake” and “outcomes are unclear.”
That is, discover how predictions are made and how they affect outcomes.
Richard Thaler of the University of Chicago Booth School of Business (my alma mater) was awarded the Nobel Prize in 2017 for his pioneering work in the field of behavioral economics. , he showed how these human traits systematically influence individual decisions and market outcomes. ”
According to classical economic theory, individuals are like Mr. Spock. Completely rational, able to soberly analyze all relevant data and act on it. In reality, Thaler argues, humans (NFL general managers and investors) are more like Homer Simpson. They are highly emotional, lack self-control, and are subject to all sorts of prejudices and “probably irrelevant factors” (“SIF”).
Not only that, but humans act in irrational and predictable ways based on these prejudices, often leading to poor decisions.
NFL general managers need to predict how a player’s college performance will translate into a professional career. Quarterback is the most highly rated position, both in terms of wins and rewards (as a percentage of the team’s salary his cap). Choosing a “franchise quarterback” is a do-or-die proposition, so it’s instructive to look at how the team drafted the position.
The 1983 draft was a quarterback “gold” as six were picked in the first round, including future Hall of Famers John Elway (Colts/Broncos), Jim Kelly (Bills) and Dan Marino (Dolphins). considered to be standard. However, it is very important to note that Todd Blackledge (Chiefs) was picked ahead of Kerry, and Tony Eason (Patriots) and Ken O’Brien (Jets) were picked ahead of Marino.
Baltimore’s Lamar Jackson is the fifth quarterback to be named in 2018 and was unanimously named Most Valuable Player in just two seasons. The Eagles’ Jalen Hurts is also his fifth-choice quarterback in 2020 and just signed the highest-paid contract in NFL history. The Patriots selected Tom Brady in his 2000 sixth round (199th), with a seventh quarterback selected (Chad Pennington, Giovanni Carmazzi, Chris Redman, Tee Martin, Mark Bulger, second only to celebrities such as Spergonwynn).
Thaler and Wharton’s Cade Massey authored “The Loser’s Curse: Overconfidence vs. Market Efficiency in the NFL Draft.” Because teams were tempted to ransom for his picks in the current and future drafts and get promoted.
In 2012, Washington considered Robert Griffin III to be a “can’t miss” franchise quarterback, giving the Rams three first-round picks and one second-round pick for second place. In 2017, the Bears added a third-place pick along with three more premium picks to the 49ers, up one slot to No. 2, and Mitch Trubisky over Patrick Mahomes (who was picked by KC at No. 10). I chose.
Thaler and Massey list five factors that also apply to investing. First, people are overconfident in their ability to differentiate a player’s potential (e.g. the first quarterback selected has only a 56% chance of being better than his second quarterback). ). Second, people make predictions that are too extreme (e.g. “the next Peyton Manning”). Third, the “winner’s curse” says that those who bid the highest for a coveted player probably overpaid. It means that the team that made the move “knows” that all other teams also want the player. Fifth, the team is plagued by “current bias,” obsessing over the short term and irrationally valuing this year’s picks over his future draft picks.
NFL teams consistently place too much value on high draft picks and regularly overpay when it comes to current and future picks to move up. You should consider trading in multiple lower picks from desperate teams. The more picks you have, the higher your chances of getting lucky.
Bryce Young (Alabama), CJ Stroud (Ohio), Will Levis (Kentucky) and Anthony Richardson (Florida) are the top quarterbacks in this year’s draft. The Panthers are in a “desperate” camp, with two first- and second-round picks and DJ Moore (the first wide receiver selected in 2018) to the Bears (quarterback Justin Brooks) under new management. Fields, clearly happy with No. 11 (2021 pick), will earn the Bears’ No. 1 overall pick.
When I asked Professor Thaler what he thought of the deal, he said: The only case where it makes sense to use the first pick rather than trade is when you’re taking the quarterback. The Bears have already acquired Fields, and while he’s yet to prove himself, there’s no reason to think the first pick of the year is any better. is. ”
Mickey Kim is the Chief Operating Officer and Chief Compliance Officer of Kirr Marbach & Co, a Columbus-based investment advisor.Contact him at 812-376-9444 or [email protected]
