Takeaways:
The NFL Draft is among my favorite events of the year. In honor of it coming up next week, Meb Faber hosted a great podcast with Cade Massey and Nobel Laureate Richard Thaler to discuss the findings of their paper The Loser's Curse: Decision Making and Market Efficiency in the National Football League Draft.
Below are some of the findings from the paper that I found most interesting. They are as relevant to the NFL Draft as they are to hiring the next employee to your company or placing any other bet. Keep them in mind as your team picks next week:
A conclusion from our analysis is that teams should trade down, not up. The players acquired by trading down make significantly more starts and just as many pro bowls.
Across all rounds, all positions, all years, the chance that a player proves to be better than the next best alternative is 52 percent, only slightly better than a coin-flip. This simple observation suggests a discrepancy between the teams’ perceived and actual ability to discriminate between prospective players.
The player selected with the final pick in the first round on average produces more surplus value to his team than the first pick! i.e., late-first-round picks generate more value than early-first-round picks. Over their first five years, first-round draft picks have more seasons with zero starts (15.3%) than with selections to the Pro Bowl (12.8%).
Numerous studies find, for example, that physicians, among the most educated professionals in our society, make diagnoses that display overconfidence and violate Bayes’ rule. The point, of course, is that physicians are experts at medicine, not necessarily probabilistic reasoning.
Reads: If you have trouble accessing some of these reads, try this
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The Art of Short Selling by Marc Rubinstein (here)
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Lucky in Life by Michael Batnick (here)
Solicited Career Advice by Phil Bak (here)
Listens:
The NFL Draft, Misbehaving GM's, & Exploiting Inefficiencies with Meb Faber (here)
Valuation is destiny with Howard Lindzon and Lewis Johnson (here)
Tobias Carlisle on Security Analysis (here)
Follow, Watch & Other great content:
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100 Foot Wave, Season 2 (trailer here)