Overconfidence vs. Market Efficiency in the National Football League
AbstractA question of increasing interest to researchers in a variety of fields is whether the incentives and experience present in many "real world" settings mitigate judgment and decision-making biases. To investigate this question, we analyze the decision making of National Football League teams during their annual player draft. This is a domain in which incentives are exceedingly high and the opportunities for learning rich. It is also a domain in which multiple psychological factors suggest teams may overvalue the "right to choose" in the draft -- non-regressive predictions, overconfidence, the winner's curse and false consensus all suggest a bias in this direction. Using archival data on draft-day trades, player performance and compensation, we compare the market value of draft picks with the historical value of drafted players. 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.
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Date of creation: Apr 2005
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- F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
- J3 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs
- G1 - Financial Economics - - General Financial Markets
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