Inefficiency in the NFL Draft

One of the major themes in our book is that decision-makers in sports do not always process information efficiently. Such work falls under the umbrella of Behavioral Economics, a field led by Richard Thaler. Now that the NFL draft season is upon us – a favorite time of year for us Lions fans – a study completed in April, 2005 by Cade Massey and Thaler is once again getting press. As detailed in the most recent issue of the Atlantic Monthly, Massey and Thaler examined decision-making in the NFL draft. As these economists state, “We find that top draft picks are overvalued in a manner that is inconsistent with rational expectations and efficient markets and consistent with psychological research.” The Massey-Thaler research would suggest that the Texans, Saints, Titans — and even the Lions — would be wise to trade down from their lofty perch in the draft. This conclusion is based on the finding that lower first round draft picks are more valuable, when one considers production and price, than the top picks these teams have earned by losing so many games in 2005. Of course, neoclassical economics argues that better information will be adopted by decision-makers. Given that the Massey-Thaler study has been available for at least a year, how long until their advice is followed by the losers in the NFL?-DJ

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