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The Loser's Curse: Decision Making and Market Efficiency in the National Football League Draft

Author

Listed:
  • Cade Massey

    (The Wharton School, University of Pennsylvania, Philadelphia, Pennsylvania 19104)

  • Richard H. Thaler

    (Booth School of Business, University of Chicago, Chicago, Illinois 60637)

Abstract

A question of increasing interest to researchers in a variety of fields is whether the biases found in judgment and decision-making research remain present in contexts in which experienced participants face strong economic incentives. 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 monetary stakes are exceedingly high and the opportunities for learning are rich. It is also a domain in which multiple psychological factors suggest that teams may overvalue the chance to pick early in the draft. Using archival data on draft-day trades, player performance, and compensation, we compare the market value of draft picks with the surplus value to teams provided 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. This paper was accepted by Uri Gneezy, behavioral economics.

Suggested Citation

  • Cade Massey & Richard H. Thaler, 2013. "The Loser's Curse: Decision Making and Market Efficiency in the National Football League Draft," Management Science, INFORMS, vol. 59(7), pages 1479-1495, July.
    • Handle: RePEc:inm:ormnsc:v:59:y:2013:i:7:p:1479-1495
    DOI: 10.1287/mnsc.1120.1657
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    References listed on IDEAS

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