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Quick Studies? An Investigation Into “Learning” Based on the NFL Draft. By Christopher Ferraro and Jacob Leibenluft. Introduction. A recent analysis of NFL draft behavior (Massey and Thaler, 2005) finds that teams tend to exhibit “overconfidence” in their ability to assess unproven talent - PowerPoint PPT Presentation
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Quick Studies? An Investigation Into “Learning” Based on the
NFL Draft
By Christopher Ferraro
and Jacob Leibenluft
Introduction
• A recent analysis of NFL draft behavior (Massey and Thaler, 2005) finds that teams tend to exhibit “overconfidence” in their ability to assess unproven talent
• In particular, what Massey and Thaler find is that the NFL market tends to “overvalue” high draft picks relative to lower picks or players with known values
Teams value early picks far more than later picks…
…but some later picks have a greater surplus value
Does Learning Happen?
• We would expect teams to learn over time and exploit market inefficiencies
• Some have: the example of the New England Patriots– Only two top 10 picks in the last 10 drafts– Won three of the past four Super Bowls
• Loser’s curse: Bad teams get higher picks, but those picks do not produce as much surplus as lower choices
Experimental Setup
• List of players with estimated “PowerPoints”
• An “opt-out” value that declines with each successive pick
• Group 1: No information given after each round
• Group 2: Draft pick’s actual value, plus the names of the top 2 players revealed to each participant
Assumptions
• For participants 1-6, the optimal strategy will usually be to pick the player with the highest PowerPoints
• For participants 7-9, the optimal strategy will usually be to opt out
• Our hypothesis: Over time, participants will recognize their optimal strategy
Assigned Abilities
• Players 1-3: PowerPoints distributed around actual value, small spread (sd=5)
• Players 4-6: PowerPoints distributed around actual value, large spread (sd=20)
• Players 7-9: PowerPoints randomly assigned
0
10
20
30
40
50
Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year10
Surplus Value – Normal Evaluation
• We looked at the surplus from each pick — what a participant earned over the comparable opt-out value.
• For subjects with PowerPoints distributed around the actual value, we expected to see steady oscillation above zero, meaning these subjects were generally making the correct picks.
* Data from Group 1, subject ID 6
Expected Results by Player
• For a subject with a random distribution (IDs 6-9), we expected to see some early oscillation around zero and then a convergence to zero as they choose to opt out more and more.
* Data from Group 2, subject ID 7
Surplus Value – Random Valuation
-25
-20-15
-10-5
0
510
15
Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year10
ID 1
-10
0
10
20
30
40
Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10
ID 2
-10
0
10
20
30
40
Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10
ID 3
0
5
10
15
20
25
Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10
ID 4
0
20
40
60
80
Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10
ID 5
010203040506070
Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10
ID 6
0
10
20
30
40
50
Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10
Normal Subjects
ID 7
-30
-20
-10
0
10
20
30
40
Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10
ID 8
-40
-30
-20
-10
0
10
20
30
Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10
ID 9
-20
-10
0
10
20
30
40
Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10
Random Subjects
Overall Results, Group 1
Normal Subjects
ID 1
-10
0
10
20
30
40
Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10
ID 2
-10
0
10
20
30
40
50
60
Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10
ID 3
-20
-10
0
10
20
30
40
1 2 3 4 5 6 7 8 9 10
ID 4
0
10
20
30
40
50
Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10
ID 5
05
10152025
3035
Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10
ID 6
0
10
20
30
40
50
Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10
Random Subjects
ID 7
-25-20-15-10-5
05
1015
Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10
ID 8
-80
-60
-40
-20
0
20
40
60
Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10
ID 9
-80
-60
-40
-20
0
20
40
Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10
Overall Results, Group 2
• In general, Group 1 tended to opt out more frequently.
• With respect to the top 5 picks, 57 percent of our random subjects in Group 1 chose to opt out relative to 14 percent in Group 2
Summary of Opt-Out Strategies
Top 5, R. 6-10ID Number 1-6 7-9 1-6 7-9 1-6 7-9Total Opt-Outs 6 11 0 8 0 5Total Opt-Out Opportunities 60 30 36 14 19 6
Top 5, R. 6-10ID Number 1-6 7-9 1-6 7-9 1-6 7-9Total Opt-Outs 1 7 0 2 0 2Total Opt-Out Opportunities 60 30 36 14 19 6
Group 1Total Top 5 Picks
Total Top 5 PicksGroup 2
Opt-Out Analysis
-50
0
50
100
150
200
Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10
Group1 Group2
Gain for Top 5 Picks
Surplus from Top Five Picks
Note: In this graph, surplus for participants who opted out is calculated as the opt-out value minus what the participant would have earned if he had selected the highest rated player on his sheet
Regression Analysis
Group 1 Group 2 Group 1, after Round 4
Group 2, after Round 4
N = 90 N = 90 N = 54 N = 54 Predicted difference -0.0057311
(t = -2.45) -0.0027269 (t = -1.39)
-0.0078512 (t = -2.45)
-0.0040255 (t = -1.65)
Predicted difference * talent dummy
-0.006235 (t = -1.73)
0.0039241 (t = 1.70)
-0.0064276 (t = -1.29)
0.0086233 (t = 2.99)
Constant 0.448795 0.1434108 0.5169846 0.1800374 F-test (predictdiff + interact = 0)
19.28 ( p > F = 0.000)
0.95 (p > F = 0.3339)
14.17 (p >F = 0.0004)
8.66 ( p >F = 0.0044)
Learning appears to happen around Round 4 in the second group, but not in the first group - offering weak support for our hypothesis!
Analysis
• Why should we be cautious in interpreting these results?– Sample size (number of rounds and number
of players)– Some players chose alternate strategies we
didn’t expect (Group 2, Player 9)– Questionable design in some cases — three
groups instead of two
Applications
• The job market– Does a boss rely on his/her own assessment or on proven
performance? – How do different employers react to the behavior of other
employers?
• Auctions for antiques/art– Do buyers learn to follow their own assessments or the “herd”?– “Bargain hunting” vs. masterpieces