A study of the NFL draft with some interesting conclusions.
The Loser's Curse: Decision Making and Market Efficiency in the National Football League
DraftAbstract
A question of increasing interest to researchers in a variety of fields is whether the biases found in judgmentand decision-making research remain present in contexts in which experienced participants face strongeconomic incentives. To investigate this question, we analyze the decision making of National FootballLeague teams during their annual player draft. This is a domain in which monetary stakes are exceedingly highand the opportunities for learning are rich. It is also a domain in which multiple psychological factors suggestthat teams may overvalue the chance to pick early in the draft. Using archival data on draft-day trades, playerperformance, and compensation, we compare the market value of draft picks with the surplus value to teamsprovided by the drafted players. We find that top draft picks are significantly overvalued in a manner that is inconsistent with rational expectations and efficient markets, and consistent with psychological research.
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1. High picks are overvalued
2. Lower picks are undervalued
3. It's almost always best to trade back when looking for value.
4. The Draft Value Chart the NFL uses gives far too much value to high picks and not enough value to lower picks.
5. Biases of those who do the drafting interfere with getting picks right.