Sunday, April 24, 2011

Similarities between NFL draft and finance

Buffalo Bills helmetImage via WikipediaDraft week is always one of my favorite weeks of the year. It is a great opportunity to watch forecasting, game theory, emotions, rationality, and behavioral finance/economics interact. Take for instance this quote from Bill Polian of the Colts (formerly of the Buffalo Bills)

On best player available and other strategy - AFC South Blog - ESPN:
"“I think you face three temptations,” Polian said. “The first is that you overvalue positions, i.e. quarterback, and so you try to create someone. Secondly, and it ties together, if you have a need you tend to overvalue players at that need position. It’s just human nature. And then third, you may try to reach, which is the same as overvaluing a player, because you’re trying to hit a home run. You say, ‘Well, if we hit on this player, boy does he have upside.’ And many times the upside doesn’t pan out.

Want more similarities?  These from Michael Silver's  article on the so called 'rogue scout' David Razzano:

"Another trap cited by Razzano: Teams often reach for a perceived need, rather than selecting the player they’ve rated the highest. First-round picks, in particular, can be impacted by an owner and/or general manager’s desire to fall into line with media projections (and to therefore receive high marks from reporters who offer instant draft grades)."        .

The article also talks about "group think", basing valuations on what others in the league presumably think the value is, and the risk of "growth vs value."  
 Gee, that sounds so much like finance, I may have to use it in class ;) .
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