Overconfidence vs. Market Efficiency in the National Football League
63 Pages Posted: 31 May 2005 Last revised: 19 Oct 2022
Date Written: April 2005
Abstract
A 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.
Suggested Citation: Suggested Citation
Do you have a job opening that you would like to promote on SSRN?
Recommended Papers
-
By Glenn W. Harrison and John A. List
-
Neoclassical Theory Versus Prospect Theory: Evidence from the Marketplace
By John A. List
-
Sorting, Prices, and Social Preferences
By Edward P. Lazear, Roberto A. Weber, ...
-
The Origin of the Winner's Curse: A Laboratory Study
By Gary Charness and Dan Levin
-
Experimental Evidence on Alternative Environmental Valuation Methods
-
Friend or Foe? A Natural Experiment of the Prisoner's Dilemma
By John A. List
-
Naturally Occurring Markets and Exogenous Laboratory Experiments: A Case Study of the Winner's Curse
By Glenn W. Harrison and John A. List
-
Risk Attitudes, Randomization to Treatment, and Self-Selection into Experiments
By Glenn W. Harrison, Morten I. Lau, ...