Operations, Information and Decisions Papers

Document Type

Journal Article

Date of this Version

7-2013

Publication Source

Management Sciecne

Volume

59

Issue

7

Start Page

1479

Last Page

1495

DOI

10.1287/mnsc.1120.1657

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.

Keywords

overconfidence, judgment under uncertainty, efficient market hypothesis, organizational studies, decision making

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Date Posted: 27 November 2017

This document has been peer reviewed.