Hiring Decisions for High-Value Employees: Evidence from March Madness Performance
If anything, unexpected performance in the MM tournament deserves more weight than it gets in the draft decisions.
In Does March Madness Lead to Irrational Exuberance in the NBA Draft? High-Value Employee Selection Decisions and Decision-Making Bias (NBER Working Paper No. 17928), authors Casey Ichniowski and Anne Preston assemble an extensive and detailed dataset on the performance of collegiate and professional basketball players over the years 1997-2010 to answer two questions: does performance in the NCAA "March Madness" (MM) college basketball tournament affect NBA teams' draft decisions? And if it does, do NBA teams overweight player performance in these extensively-covered games, or are adjustments to the draft order for MM performance justified by players' subsequent performance in the NBA?
Investigating the idea that decision makers often irrationally overweight recent, vivid, and dramatic information, such as how players perform in the much-hyped MM tournament, the researchers find that unexpected MM performance does indeed affect draft decisions. Their analysis consistently shows that draft decisions are affected by unexpected team wins and unexpected player scoring. They estimate that having one more MM win for your team than your team's seeding would predict and contributing to that win by scoring 4 more points in the MM tournament than your regular season average would predict (all else equal) improves a player's draft position by 4.7 slots.
However, the authors find that NBA personnel who are making these draft decisions are using the information from March Madness performance in a rational way. If anything, unexpected performance in the MM tournament deserves more weight than it gets in the draft decisions. How collegians perform under the glare of intense media attention and large arena crowds in a lose-and-go-home championship tournament appears to provide important information about the true potential of these players as professional NBA players.
Finally, the authors find that players with positive draft bumps because of unexpectedly good performance in the March Madness tournament are more likely to become NBA superstars in the league than are players who were selected at similar positions in the draft but who did not have any March Madness-induced bump in their draft order.