April 28, 2014

Fantasy Freestyle

Transaction Paralysis

by Jeff Quinton

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Note: Today I want to discuss a somewhat pressing topic; thus, the negotiation series will pick back up next week. Until then, below is more strategy and decision-making.

Standard, early-season fantasy baseball advice states that we should be patient with our underperforming picks, especially the ones we have invested in heavily. This is the standard advice because it is good advice. Dropping a slow starting Edwin Encarnacion for a hot starting Justin Morneau is not a good idea (bold, I know). However, this does not mean you should be holding onto every one of your players regardless of performance or opportunity cost (that being the other players available). Players in the waiver pool are occasionally better than the players on our rosters. We should pick up those players, but often we do not pull the trigger quickly enough. Two things about humans: (1) we overvalue the things we own and (2) we are afraid of making mistakes that result in loss more than we are enticed by taking action that results in gains (in the short term). These are the result of the endowment effect and loss aversion, respectively. Both of these factors make us less likely to drop one of our players for a better available player. As per usual, let us dig into each factor and discuss how we can overcome these biases.

1. Endowment Effect: overrating what we own
I have discussed the endowment effect as it relates to trades (more specifically, its ability to hinder trades) before, but the endowment effect will also deter us from dropping a player we own for a better player. When the player on waivers is much better than the player on your roster, the endowment effect will not be a hindrance. However, when the value difference between the two players is closer, say an $11 pitcher and an $8 pitcher (per your offseason values), the temptation might be to hold onto your $8 pitcher because you now value that asset more for no other reason other than your ownership of that asset. A real life example follows.

Someone asked me a question. More specifically, he asked, “should I drop my Chris Tillman to pick up Corey Kluber, who was inexplicably dropped?” He elaborated, “Chris Tillman has been pretty good for me and while I was high on Corey Kluber coming into the season, I am leaning towards keeping my guy.” After asking if he was down on Corey Kluber because of a couple bad starts, to which he answered, “no,” I explained the endowment effect to my pal. That said, understanding and overcoming are completely different animals, and what we really need is a tool for overcoming in-season endowment effect. Therefore, I have come up with a very crude and simple tool that I am now using. Instead of asking myself if I think a player I do not own is better than a player I do own, I now ask myself the following: if I had to choose between these two players as a throw-in piece in a trade package, which would I rather receive? Does this tool completely wipe out the endowment effect? No, it does not, but it does remove the ownership aspect of the decision and can help add some clarity to these difficult decisions.

2. Loss Aversion: we avoid losses more than we seek gains
Even if we overcome the endowment effect, loss aversion still lurks as an impediment to dropping our player for a better player. Put differently, while adding a new, valuable player is enticing, dropping a valuable player that we already owned sounds and feels disastrous. What if, using the above example, Chris Tillman goes on to win 20 games with 200 strikeouts, while Corey Kluber ends up only being decent or, even worse, a complete mirage? Again, that sounds awful; no one wants to be seen as the owner that dropped the breakout player. The important thing to point out here is that we are only looking at the hypotheticals from one side, the side of loss because we (humans) are inherently loss averse. Even when we do look at the hypotheticals from the other side, the side of gains, they are not as appealing as the losses are unappealing. So what can we do?

Luckily, perspective, which is the very thing that gets us into this, is also the very thing that can help get us out. We are entering what is Jeff talking about territory, so let me try to circle the wagons here. In the short term, we are more likely to regret things we have done than we are to regret things that we have not done. In the long term, however, this phenomenon reverses course and humans are more likely to regret things that we have not done than we are to regret things we have done. In other words, we are more likely to fear making the mistake of dropping a good player in the short term, but we are more likely to regret not dropping a player for a better player in the long term. This has enormous impact on decisions. If we frame the decision in the present, we will focus on what we are potentially losing, but if we frame the decision in the future (looking back on our decision), we will focus on what we are potentially missing out on. Again, we need another tool; therefore, I now do the following: instead of only asking myself what I stand to lose if I drop a player, I now make sure to also ask myself what I could be missing out on come the end of the season if I pass up the opportunity to acquire a player. This is not a perfect tool either, but does help to make us slightly better decision makers.

Again, fighting our biases is not easy and we can never fully overcome them. Moreover, we are still betting on probabilistic outcomes; thus, we are never going to bat 1.000. However, if we can frame our decisions in a way that works to fight these biases, then we can at least give ourselves a better chance at making the best decisions.

Jeff Quinton is an author of Baseball Prospectus. Follow @jjq01
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