No One Thinks They Own a Lemon
The endowment effect and the NFL Combine.
Posted Feb 28, 2020
How much is your car worth? There’s a good chance that whatever price comes to mind is more than its true market value -- and almost definitely a higher price than someone else would pay for it.
Why? Because people tend to overvalue things that are personal to them, a psychological phenomenon known as the endowment effect.
It’s not just the average car owner that falls victim to this tendency -- NFL teams are guilty as well. And what can be more overvalued than a brand-new, shiny, young football player that a team has recently acquired during the NFL draft?
Teams only acquire new draft picks after hours of painstaking research, hundreds of scouting excursions, blood, sweat, and tears from hundreds of people, and an entire fanbase clamoring for their favorite team to burnish the next best thing.
It all begins with the NFL Draft Combine, which has kicked off this week -- it’s the NFL’s version of the SAT. No, future players are not valued for their reading, but rather, the evidence that they just completed a bench press of 225 pounds, 32 times in a row.
Along with the bench press, players at the combine complete a range of other feats of athletic aptitude, things like the broad jump, the 3-cone drill, the shuttle drill, the vertical jump, and the illustrious 40-yard dash.
Stand out in any particular category, as measured against players in your same draft class at your same position, and watch your potential draft position rise to an earlier selection.
Running backs, for example, are touted for their ability to, well, run. Over the last decade (2010-2019), running backs with faster 40-yard dash times were chosen earlier in the NFL draft than their counterparts who ran the event more slowly1.
Subsequently, running backs that were chosen earlier in the NFL draft were given more opportunities to rush the football in their first year as a professional2.
Put simply, demonstrate that you can run fast and teams will clamor for you to run fast with the football in your hands while wearing their jersey.
But there’s a catch.
2010-2014: Endowment Era
Between 2010 and 2014 running backs that were picked earlier in the NFL draft performed no better than running backs picked later in the draft3. Getting picked earlier in the draft did not guarantee that a player would return better production, despite the fact that teams still handed them the football more often than lower draft picks.
Why, then, did NFL coaches and teams decide to give their high-drafted running back so many opportunities their first year?
Wait, how much is your car worth again?
NFL teams over-valued their shiny new toys in spite of the fact that they weren’t any better than the less shiny toys chosen later in the draft. In other words, the endowment effect!
Psychologists offer a few explanations for this phenomenon.
1. Loss aversion: In general, the hurt of anticipated losses is much more painful than the pleasure associated with anticipated gains. If a team uses one of its precious top picks on a player, the anticipated hurt of having to cut or trade that player, even if they are underperforming, drives teams to give their selections as many opportunities as possible to justify their draft position and prove the front office right.
2. Self-esteem: It could also be that people are motivated to see themselves as generally good, and therefore perceive things associated with themselves as good as well. Research suggests that simply choosing something among similar options causes people to form a more positive mental association with it than others might.
2015-2019: First signs of analytics?
In the last five years (2015-2019), though, something changed. NFL teams gave early round running backs the ball just as often as they had before -- only with better results. Running backs chosen earlier in drafts suddenly produced better average yards per rush than those chosen later in drafts4.
Maybe it was the sports analytics movement, the quest to numerically understand and predict the performance of players and teams, that might explain the sudden increase in performance. It could be that all this data has allowed teams to make better selections of running backs early in the draft.
This is not to say that the endowment effect has evaporated. Running backs chosen early in drafts are still treated with high regard. It could be the case that NFL teams still place great value on earlier draft picks, only now the greater subjective value bestowed onto earlier picks is justified -- on par with the player’s objective value.
1. r = -.244**
2. r = -.508**
3. As measured by average yards per rush
4. r = .398**