Draft Picks and the High Price of Ownership

At any given time in the NBA, only about twenty to fifty players really matter – and even that estimate is likely high. Many of those players are veterans who stay good for many years. The first round of the draft adds 30 new – and often highly regarded – faces to the NBA each year. But the math simply isn't in favor of even a decent chunk of these players becoming franchise players. Consequently, the NBA draft illustrates some amazing psychology lessons about the future and how we evaluate our decisions.

Bad at Judging the Future

One of my favorite authors on the subject of happiness and decision making is Dan Gilbert (the psychologist, not the Cleveland Cavaliers owner). Gilbert and crew have tons lots of experiments on how happy we think things will make us, versus how happy they actually do. The great book, Stumbling on Happiness recounts many of these. A really fun study is to ask people three questions at three different times:

  • "How happy do you think you'll be?" – Before the event.
  • "How happy are you?" – At the event.
  • "How happy were you?" – After the event.

The trend that the researchers found looked like this:

This curve is important. Think about it, we're overconfident going into things. However, our memories still have to be off, or we'd actually, you know, stop making mistakes. I feel this curve perfectly represents how draft picks work. When a draft pick is an unknown, a "first rounder", everyone is excited. The second a team converts this into a player, the value drops. Ask yourself this: if the Cavs had Shabazz Napier and James Jones on their team and had traded them for Timofey Mozgov, would anyone have blinked? In fact, the Cavaliers performed a great experiment. They turned Dion Waiters into a first round pick, and then flipped that into Mozgov. People were more upset about "draft picks" than Waiters, but Waiters himself is a former top five pick!

I view draft picks like new cars. Their values drop the second they "leave the lot." Well...mostly. That brings up our next point.

The High Price of Ownership

Another one of my favorite authors is Dan Ariely. In the book Predictably Irrational, he discusses an amazing experiment that relates to the NBA draft. In chapter seven, Dan Ariely writes about "the High Price of Ownership." Duke University has a very popular basketball team. Students will wait in line for a long time for tickets to big games. However, in some cases there aren't enough tickets so the school holds a lottery. The same group of students that wanted the highly coveted tickets is split into two groups:

  • Those who got a ticket.
  • Those who wanted a ticket but didn't get it.

The cool part about making this into a lottery is that it turns it into a fun experiment. The groups are essentially the same, with the exception being ticket ownership.

Dan Ariely took advantage of this. He and his colleagues cold-called the students who had a ticket and asked: "How much will you sell me your ticket for?" They also cold-called students who wanted a ticket and said: "How much would you buy a ticket for?" The difference?

  • $1,400 to sell a ticket (on average)
  • $170 to buy a ticket (on average)

Holy cow! Simply "winning" the lottery lead to a huge change in how a student valued one of these tickets. This fallacy falls in the same vein as the "Ikea Effect" – we value things we design/build ourselves more than similar things designed by others – and the "Sunk Cost Fallacy" – we overvalue something when we're heavily invested in it.

When I mentioned my point about draft picks being like new cars, Layne Vashro asked me about it.

This is how the NBA draft is an amazing example of overlapping psychological quirks: to many a draft pick follows the curve I showed from Dan Gilbert. Fans get excited about future picks, less thrilled when they use them, but misremember them so they can repeat the process all over again. However, for the people that actually use their "highly coveted" picks? They severely overvalue them. Think about the Klay Thompson for Kevin Love trade. Current performance aside, at the time the value discrepency to those outside of the Warriors was obvious. You'd have to rate Klay Thompson ten times as highly to think he was worth it, right? And I can't help but wonder if teams that tank for high draft picks or that trade away key assets don't also value their picks even higher than others.

This is a fun example where the two psychological quirks run into each other. When you make a decision to get a player with a high draft pick, you will immediately overvalue them. To the people who didn't use the draft picks, their value will immediately drop. And thus we can see how so many trades seem reasonable to some and ludicrous to others. As many bring up, sports is about more than numbers, and psychology is a large part of that.