Posts Tagged ‘Thaler’

Dan Snyder and the Washington Redskins

September 8, 2015

For people who do not know, Dan Snyder is the owner of the Washington Redskins and has been refusing to change the name to avoid ethnic and racial sensitivities.  People who object to his intractable position or who are disgruntled Washington Redskin fans should enjoy this post, as should people who are interested in successful applications of behavioral economics.

In the National Football League (NFL) in which the Washington team plays, there is an annual draft in which draft picks are made in a designated order.  The picks are ordered in each round so that the order proceeds where the team with the poorest performance picks first up to the best performing team, which picks last in each round.  Draft pick number can be traded among teams, when teams think they will benefit from the trade.  Optimal picks . can be identified using the principles of behavioral economics.  This strategy is described in Misbehaving:  The Making of Behavioral Economics by Richard H. Thaler.  The following five findings from the psychology of decision-making support the hypothesis that early picks will be too expensive:
1.  People are overconfident.  They are likely to think their ability discriminate between the ability of two players is greater than it is.
2.  People make forecasts that are too extreme.  In this case, the people whose job is to assess the quality of prospective players—scouts—are too willing to say that a particular player is likely to be a superstar, when by definition superstars do not come along often.
3.  The winner’s curse.  When many bidders compete for the same object, the winner of the auction is often the bidder who most overvalues the object being sold.  The same will be true for players, especially the highly touted players picked early in the first round.  The winner’s curse says that those players will be good, but not as good as the teams picking them think.
4.  The false consensus effect.  People tend to think that other people share their preferences.  In the draft, when a team falls in love with a certain player they are just sure that every other team shares their view.  They try to jump to the head of the line before another team steals their guy.
5.  Present bias.  Team owner, coaches, and general managers all want to win now.

Thaler and his colleague Cade, performed  behavioral analytics, which are discussed in “Misbehaving:  The Making of Behavioral Economics,” that yielded two simple pieces of advice to teams.  First, trade down.  Trade away high first-round picks for additional picks later in the draft, especially second-round picks.  Second, be a draft pick banker.  Lend picks this year for better picks next year.

When Thaler told Snyder about the project, he immediately said he was going to send “his guys” to see Thaler right away because “We want to be the best at everything.”  Thaler and Cade did so.  They had further discussions at the end of the season.

The next year Thaler and Cade watched the draft that year on television with special interest that turned into deep disappointment.  The team did the opposite of what was expected.  They moved up in the draft, and then traded away a high draft pick next year to get a lesser one this year.  When they asked their contacts what happened, they got the short answer.  “Mr. Snyder wanted to win now.” (see item 5 above).  With the exception of one season when they were eliminated in the first round of the playoffs, the performance of the Washington team has been abysmal.   There was a time when an argument could be made that “Redskin” was not a pejorative term in the DC area.  For many fathers there could be nothing better than for their son to become a “Redskin.”  However, under Snyder’s ownership, that is no longer true.  The team has become an embarrassment for Washington fans.

I have noted the incompetence of many owners of professional sports franchise that makes me wonder, “How on earth did they manage to become wealthy?”

© Douglas Griffith and, 2015. Unauthorized use and/or duplication of this material without express and written permission from this blog’s author and/or owner is strictly prohibited. Excerpts and links may be used, provided that full and clear credit is given to Douglas Griffith and with appropriate and specific direction to the original content.