Richard H. Thaler: The [National Football] League has evolved some kind of rule of thumb for trading picks across years. The rule of thumb is if you trade a third-round pick this year, you get a second-round pick next year. And you can think of that as the interest rate. It’s a one-round-per-year interest rate. That implies a discount rate of about 150 percent. These owners, all of them are billionaires. They did not get to be billionaires borrowing at a 150 percent rate of interest. But when they get to be football owners, they wanna win, and they wanna win right now.
Richard H. Thaler: One of the best [NFL] draft picks in history was Tom Brady, the quarterback for the New England Patriots, who was taken with the 199th pick. Part of the success of the Patriots in the early Brady days was attributable to the fact that they had a starting quarterback that they didn’t have to pay very much money. There’s a salary cap in the National Football League. So teams are constrained, and it’s much easier to build a team around a cheap quarterback than an expensive one. The advice that we give to teams is: when in doubt, trade down and get more picks. Tom Brady is an example of the good things that can happen to you if you have more picks.
Richard H. Thaler: There’s another finding in psychology called the false consensus effect, which is people think everybody is just like us. And so the teams go through this. And they’re all petrified that the player they’re in love with everybody else is also in love with. And they’re all gonna take him if they don’t take him right away with this very high pick. And so it’s decision-making under uncertainty. And this year the uncertainty is greater than ever.
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