The Loser's Curse: Decision Making and Market Efficiency in the National Football League Draft

TLDR

Decision‑making biases studied in psychology may persist in high‑stakes contexts such as the NFL draft, where teams face large monetary rewards and may overvalue early picks. The study examines whether NFL teams’ draft decisions reflect such biases. Using archival draft‑day trade, player performance, and compensation data, the authors compare each pick’s market value to the surplus generated by the player. They find that top picks are significantly overvalued, contradicting rational expectations and supporting psychological theory. The paper was accepted by Uri Gneezy, behavioral economics.

Abstract

A question of increasing interest to researchers in a variety of fields is whether the biases found in judgment and decision-making research remain present in contexts in which experienced participants face strong economic incentives. 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 monetary stakes are exceedingly high and the opportunities for learning are rich. It is also a domain in which multiple psychological factors suggest that teams may overvalue the chance to pick early in the draft. Using archival data on draft-day trades, player performance, and compensation, we compare the market value of draft picks with the surplus value to teams provided by the drafted players. We find that top draft picks are significantly overvalued in a manner that is inconsistent with rational expectations and efficient markets, and consistent with psychological research. This paper was accepted by Uri Gneezy, behavioral economics.