A few weeks ago I noted the research of Cade Massey and Richard Thaler. At ESPN.com, Tuesday Morning Quarterback – Gregg Easterbrook – casts doubt on the work of these two economists. According to Easterbrook: “Researchers Richard Thaler of the University of Chicago and Cade Massey of Yale got some ink for a study suggesting low NFL draft picks are worth more than high picks because the high picks get huge bonuses that crush a team's salary cap. The NFL draft system actually penalizes losing clubs by awarding them top picks, the researchers maintained, because on average highly drafted players are overpriced compared to what they accomplish. Tuesday Morning Quarterback is suspicious of this finding. If a high choice actually is worth less than a low choice, why don't teams with high choices simply swap them for low choices?” “…Thaler's and Massey's paper seem to me another instance of abstract academic theory that ignores how people and organizations behave in the real world. Presumably most NFL teams are what economists call "rational actors," and would get rid of high picks if such selections actually were worth less than low picks.”
What do we learn from this quote? Apparently Easterbrook missed the point of the Massey-Thaler paper. Let’s imagine for a moment that people in the NFL were perfectly rational and understood their environment. Then Easterbrook would be right, inefficiencies in the marketplace would vanish due to competitive forces. But Massey and Thaler are arguing that Easterbrook is incorrect to assume NFL teams are run by “rational actors.” Consequently, as Massey and Thaler argue, inefficiencies persist. To see this point, one does not have to read the entire Massey-Thaler paper. All you have to do is read the last sentence of their abstract: “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.”
I would add that the conclusion Massey and Thaler reach about the NFL is consistent with what we found in our examination of salaries in the NBA: Rational actors in sports are not quite as common as strict economic theory, and Tuesday Morning Quarterback, might suggest. (Thanks to Rich Campbell for alerting me to the Easterbrook analysis).
– DJ
Wages of Wins Journal 
Mark
May 5, 2006
I think you hit the nail on the head by pointing out that NFL general managers are not rational actors when it comes to the draft, particularly not in the first round. There are far too many external factors at work that affect the decision and few are made for purely football reasons. Accepting that the Texans decision to draft Mario Williams was made for football reasons (although I find that to be extradordinarily difficult to do) then it is yet another example of a less than rational act taken for external reasons. The most significant of which was the price of Reggie Bush’s contract versus what William’s could be signed for in the short term. Here too was a general manager who was not going to be around to have to live with the consequences of the decision. He knew that he would be lieaving the job either in the next few weeks or surely in the next year or two.
The NBA is perhaps even less rational than the NFL because there are no guaraneed contracts in the NFL so the wrong decision doesn’t hurt quite as much or quite as long. nevertheles in either case, paying outlandish sums to unproven young men while not paying veterans makes no economic sense. There is no reason for a Reggie Bush to be one of the two or three highest paid players on a team withot having proven his ability to compete. It is Easterbrook who needs to demonstrate an ability to be rational .
Vinny
May 6, 2006
I am a native Detroiter who remembers when the Lions were supposed to win the Super Bowls when Steve Owens was drafted for the backfield — remember that?
Then, there was the “another one bites the dust” Billy Sims years …
And, the poor Barry Sanders — so great but yet so far episode.
And, just what kind of QB is Joey Herrington anyway.
So as far as the Lions, the best thing we can do when it comes to a draft is order one up at the bar
dberri
May 6, 2006
As Mark notes, the Reggie Bush decision does leave one scratching your head. If we wished to give the Texans the benefit of the doubt we could note that running backs tend to get hurt. So it is possible that Bush gets injured and thus in the long-run, Williams is the better bet. Or as Mark says, the Texans GM was just focused on the short-run. Specifically, negotiating with Bush became too troublesome for someone who might be leaving soon anyways. DJ
wilbur
January 24, 2007
with posts like this how long before we give up the newspaper?!!
Ryan
April 18, 2007
Thaler and Massey suggest that teams do not have rational expectations in regards to their ability to predict player performance. They also note that teams over-estimate their ability to decipher between stars and average athletes. In the end, owners and GMs are over-confident in their ability to NFL talent simply because of the position they are in. After all, why would they be in this position if they wern’t best qualified to make such a decision?
Of course, we saw how great of a move the Texans made in last year’s draft. Mario Williams is getting paid $3.3 million this season (including allocated bonus) while defensive rookie of the year DeMeco Ryans is only making $1.3 million (including allocated bonus) this season.
Go Bears and Ohio State in 2007!!!
ps. Thanks for everything Dr. Berri.
dberri
April 18, 2007
Hi Ryan,
Thanks for the comment. How’s the new job working out?