By Richard Thaler
With the NFL draft coming up this weekend it seems like a good time to discuss the role of an unusual sort of nudge in that context. Three years ago Yale’s Cade Massey and I released a paper analyzing the NFL draft from a behavioral economics perspective. As casual fans and observers of the draft we thought that teams were falling prey to a series of cognitive biases, including overconfidence, that led them to put too high a value on picking at the very top of the draft.
Since teams often trade picks it is possible to estimate the value teams put on choosing early. That price turns out to be very high. A team can trade the first pick for the eighth and ninth picks, or the last four picks of the first round. For these prices to be rational, the first player taken has to be much better than the eighth player (since he also gets paid nearly twice as much). It turns out that performance is related to draft order, but much less strongly than these prices imply.
