Tuesday, August 11, 2009
What kind of risk-taker are you?Posted by Eriq Gardner at 2:58am
In fantasy baseball, risk-takers abound. But before we throw them all into the same boat, let’s illustrate a difference—there are those who like to play the lottery and then there are those who like to play the stock market.
Lottery players have a very high probability of coming up short but typically don’t stake much investment in their gambles. Stock market players, on the other hand, are willing to put a lot more on the line with a smaller probability of coming up short.
Here’s an example.
I participate in a league where I’ve been bouncing between second and sixth place for the last few weeks. The most competitive categories are ERA and wins. Right now, my team leads most of my competitors in those two categories, but the margin is extremely small. Problem is, in order to catch up to the first place team in the league, I’d need to make a major move in steals, and now my team is being offered Carl Crawford and a good reliever for one of my team’s best pitchers, Adam Wainwright, and a player who was projected to have about three times as many steals as he currently does. Do I do the deal?
Regardless of the answer, my team would be making a risk. Accept the deal as any stock market player would and risk a ton of points in the pitching categories—My team might finish in first, but there's a small chance it could finish in sixth place.
Reject the deal as any lottery player would and gamble on some lower possibility for making up the points differential with the first place team—My team might still finish in first, but more probably second or third.
Behavioral economists have had fun through the years studying different choices on uncertain outcomes. Although this is a realm of study loosely tied into game theory, I’m unaware of any researcher who has taken time to analyze fantasy sports competitions. Instead, they’ve gravitated to games like poker and blackjack and even game shows like “Deal or No Deal.”
Most of the studies I’ve seen seem to indicate that the vast majority of people behave like lottery players when making risky decisions. They prefer wherever possible to avoid the possibility of big losses even if they forsake optimal odds. On the other hand, there’s something in economics that’s coincidentally called “prospect theory,” whereby people evaluate potential gains and losses depending on some psychological reference point. For example, two teams in two different leagues with the exact same trade offer on the table as the one described above might come to different outcomes based on one team having achieved early setbacks and late success versus the other team having achieved early success and recent setbacks.
I also think something like this is good to keep in mind when making an offer to another team. You may believe you are making one that serves the rational interests of your trading partner, but are you selling an equity to someone who prefers a lottery ticket? Are you marketing a low-probability chance to win millions to a team less fearful of losses? Understand someone’s tolerance for seeking or avoiding risk or aptitude for measuring gains and losses and you may begin to get a sense about how to trade with them.
And oh yeah … I took the deal.
Eriq Gardner is a New York-based writer and founder of Fantasy Ball Junkie, a website for advanced fantasy baseball enthusiasts.