NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Overconfidence vs. Market Efficiency in the National Football League

Cade Massey, Richard Thaler

NBER Working Paper No. 11270
Issued in April 2005
NBER Program(s):   AP   CF   LS

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.

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Document Object Identifier (DOI): 10.3386/w11270

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