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

35 Pages Posted: 5 Apr 2005 Last revised: 5 Sep 2012

Cade Massey

University of Pennsylvania - The Wharton School

Richard H. Thaler

University of Chicago - Booth School of Business; National Bureau of Economic Research (NBER)

Date Written: September 4, 2012

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 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 overvalued in a manner that is inconsistent with rational expectations and efficient markets and consistent with psychological research.

Keywords: Market efficiency, rational expectations, behavioral decision theory, labor markets

JEL Classification: D21, D40, D84, J31, L83, M51

Suggested Citation

Massey, Cade and Thaler, Richard H., The Loser's Curse: Decision Making & Market Efficiency in the National Football League Draft (September 4, 2012). Available at SSRN: https://ssrn.com/abstract=697121 or http://dx.doi.org/10.2139/ssrn.697121

Cade Massey (Contact Author)

University of Pennsylvania - The Wharton School ( email )

3641 Locust Walk
Philadelphia, PA 19104-6365
United States

Richard H. Thaler

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
773-702-5208 (Phone)
773-702-0458 (Fax)

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