The Loser’s Curse


This email I got from David Leonhardt is too good not to FWD. Happy Draft Day!

This year’s National Football League draft will begin tonight. As one of the first normal sports events in months, it’s likely to get huge television ratings. I realize that many readers of this newsletter may not be sports fans, but I want to talk about the draft because it’s a fascinating window into human irrationality, with lessons even for people who don’t like football.

Here’s the brief version: Many people — including experts, with great resources at their disposal — are shockingly overconfident about their ability to forecast the future.

About 15 years ago, two economists, Richard Thaler (who has since won a Nobel Prize) and Cade Massey, set out to study the history of the draft. They analyzed where in the draft order different players were chosen and then compared the order to the players’ later performance.

Thaler and Massey discovered that, despite the time and money that football teams devoted to studying players, the teams weren’t very good at predicting who would be the best. Those chosen early often had less impressive careers than those chosen later. The chance that a player at a given position turns out to be better than the next player drafted at that same position is only 52 percent, not much better than a coin flip. Predicting the career paths of 22-year-olds in any field is hard.

Consider that neither of the past two Super Bowl-winning quarterbacks (Patrick Mahomes and Tom Brady) were chosen at the very top, while several recent #1 picks (like Baker Mayfield and Jameis Winston) have struggled.

And yet N.F.L. teams continue to treat the very top picks as far more valuable than picks slightly further down. They’re often willing to trade multiple picks later in a draft for a single pick near the top. It’s irrational, and predictably so, but the N.F.L. teams can’t help themselves. Executives remember the exceptions — the top picks who turned out to be as good as advertised — and convince themselves that they can pull off another one.

“Even the smartest guys in the world, the guys who spend hours with game film, can’t predict this with much success,” Massey has told me. “There’s no crime in that. The crime is thinking you can predict it.”

The savviest teams have realized they can exploit this irrationality by trading one of their high picks for multiple picks lower down. They effectively swap the ability to choose the one player they want for the ability to take chances on multiple players. They embrace humility. The Dallas Cowboys built a championship team in the 1990s with this approach, and the New England Patriots have done so over the past two decades.

Tonight, the teams with the most glaring opportunities to trade down are the Detroit Lions (who pick third) and the New York Giants (fourth). The Lions and Giants have also been two of the worst-run franchises in recent years.

So allow me to suggest some last-minute reading for their executives — and for anyone who enjoys an unusually well-written academic research paper. The official title is: “The Loser’s Curse: Decision Making and Market Efficiency in the National Football League Draft.”

For more …

  • The Massey-Thaler paper is part of a long line of research on human overconfidence. One famous experiment found that psychologists became more confident — but no more accurate — in their diagnoses as they received more information.

  • As Maria Konnikova wrote in Scientific American:

We tend to be underconfident on easy problems and overconfident on difficult ones. In other words, we underestimate our ability to do well when all signs point to success, and we overestimate it when the signs become much less favorable, failing to adjust enough for the change in external circumstances. Second, it increases with familiarity. If I’m doing something for the first time, I will likely be cautious. But if I do it many times over, I am increasingly likely to trust in my ability and become complacent, even if the landscape should change (overconfident drivers, anyone?).

  • I spoke to Thaler yesterday, and he offered a prediction for tonight: If any high profile trades happen, the team that moves up in the draft will select a quarterback — and will pay the traditional market price in draft picks for doing so. (N.F.L. teams use a chart that describes the supposed value of each draft pick; the chart substantially exaggerates the value of top picks.)

  • The social psychologist Philip Tetlock has done extensive research into forecasting failures, including his book with Dan Gardner, “Superforecasting.”

  • “For more than a month, American culture has existed on a split screen. On one hand, movies and theater and travel and every other sport ground to a halt,” The Ringer’s Bryan Curtis writes. On the other hand, the N.F.L. keeps going — in part because it’s in its offseason. Curtis describes tonight’s draft as “the Quarantine Super Bowl.”

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