Business

The equation: First-round NFL draft picks are overvalued

By Vanessa Sumo     
March 05, 2014

From: Magazine

When NFL teams trade their top draft picks in exchange for picks in later rounds, such trades reveal the picks’ implied market values. But do teams accurately value such trades? Not always, according to Richard H. Thaler, Charles R. Walgreen Distinguished Service Professor of Behavioral Science and Economics at Chicago Booth, with Cade Massey of the Wharton School, who has an MBA and a PhD from Chicago Booth.

The researchers compared the market prices from trades with their own analysis of a draft pick’s surplus value, which depends partly on the value that teams place on performance, based on how much they pay their veteran players. Thaler and Massey find that teams selecting players at the beginning of a second-round NFL draft tend to get the best deals, and that the first pick of the draft may end up being the worst value in the first round.

Learn more about this model in this issue's cover story, "The biggest blunders in sports."