Fantasy Baseball Mind Games: Prospect Theory
By clavejones
A favorite on mine, I thought this guy was untouchable until an offer came along that could help me win now. Image courtesy of Brothm.
We are getting ready to seriously nerd out.
If you’ve read one or more of the posts from the Mind Games series, you’ll know that the point of it all is to examine how we as humans don’t always process information rationally. Today is another such example and it’s a doozy: Prospect Theory.
Prospect theory contends that people value gains and losses differently. As such, they will base decisions on perceived gains rather than perceived loses. Thus, if a fantasy baseball owner is given two equal choices, one in terms of possible gains and the other in possible loses, people would choose the former. This is true even they they achieve the same end result.
According to prospect theory (remember, we’re using ‘prospect’ as a behavioral idea presented in 1979 by Nobel Prize winner, Daniel Kahneman, not in terms of a promising young baseball player) loses have more emotional impact than an equivalent amount of gains. For example, in a traditional way of thinking, the amount of utility gained from receiving a $10 player should be equal to a situation in which you gained a $15 player while losing a $5 player. In both situations, the end result is a net gain of $10.
However, despite the fact that you still end up with a $10 gain of value in either case, most people view a single gain of $10 more favorably than gains $15 only to lose $5.
Relevance
The prospect theory can be used to explain quite a few illogical financial behaviors. For example, there are people who do not wish to put their money in the bank to earn interest or who refuse to work overtime because they don’t want to pay more taxes. Although these people would benefit financially from the after-tax income, prospect theory suggests that the benefit (or utility gained) from the extra money is not enough to overcome the feelings of loss incurred from paying taxes.
I’ve found this has fantasy relevance in two areas.
- I’ve watched owner after owner decline trade offers well in their favor. They declined because they couldn’t overcome the feeling of loss they were feeling in giving up the certain player, despite the fact that the gain they would be receiving would be much greater. They missed out on a net gain because they couldn’t overcome the feeling of loss. If you are ever in this position, do your research well and realize you might have to give up something in order to get something even greater. Don’t let the feeling of loss be your only guide.
- In auctions I’ve seen fantasy owners miss out on players because they weren’t able to go over budget on a player because they felt they couldn’t risk losing that extra $3-4 it would take. Often they’d end the draft on effectively on budget, but would leave a few bucks on the table. In being fixated on the loss, they missed out on scoring the player they really wanted.
Prospect theory also explains the tendency of investors to hold on to losing stocks for too long and sell winning stocks too soon. The most logical action, of course, would be to hold on to winning stocks in order to further gains and to sell stocks in order to prevent escalating losses.
It’s not hard to see how this plays out on fantasy teams as what are we doing if not investing in players. We’ve all seen owner cut their losses too quickly in April when dealing with a cold start, only to miss out on the gain that would’ve come had they waited it out. People butcher the idea of sell high/buy low all the time…honestly, let’s not even go into all the ways that prospect theory effects the valuation of players. Let’s just restate the principle: let’s not be so fixated on losses that we miss an opportunity for gain.
Whether it’s mental accounting or just following the herd, chances are we’ve all been guilty of some of the mind games highlighted in this series of posts. Now that you can identify some of the biases, my hope is that you’ll be able to apply some of the knowledge and, in turn, become a better fantasy baseball player. Hopefully, your future fantasy baseball decisions will be a bit more rational and you’ll tick up the standings in your league.
We all fancy the thought that we make reasonable, rational decisions, but I think we’ve learned that there are a lot of mind games going on with fantasy baseball.
The full series of posts: