March 22, 2016

The Quinton

Beating the Wisdom of the Crowd

by Jeff Quinton

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“Take the player with the most value.” “Take the value that the market or our leaguemates are offering us.” “Strategic agility allows us to capture the most value.” “X point in the draft (or auction) is where the best values are to be had.” And so on.

We talk a lot about value, but lots of times it’s a placeholder for telling people to make good decisions. Yes, we should always be trying to make good decisions. However, telling someone to make a good decision is not helpful advice. My brother used to have a basketball coach that would yell, “grab it,” in an attempt to help his players get rebounds. The players knew the goal was to try to get the rebound, just as readers of fantasy sports articles know that the goal is to make good decisions and to get the best values on draft day. “Take the best value” and “make a good decision” are pieces of advice no more useful in fantasy sports than “grab it” is in basketball.

What we thus need is advice on how to acquire value, on how to make decisions that are better than the decisions made by our competition. This sounds simple because it is simple, but simple in this case—as it is in most cases—is incredibly difficult. Consistently acquiring undervalued players is difficult because the competition is wise. James Surowiecki tells us so in The Wisdom of Crowds: Why the Many are Smarter Than the Few and How Collective Wisdom Shapes Businesses, Economies, Societies and Nations. Surowiecki writes,

“...there's no real evidence that one can become expert in something as broad as ‘decision-making’ or ‘policy’ or ‘strategy.’ Auto repair, piloting, skiing, perhaps even management: these are skills that yield to application, hard work, and native talent. But forecasting an uncertain future and deciding the best course of action in the face of that future are much less likely to do so. And much of what we've seen so far suggests that a large group of diverse individuals will come up with better and more robust forecasts and make more intelligent decisions than even the most skilled ‘decision-maker.’”

Especially with in today’s information age, where everyone has the same information, it becomes difficult to be able to beat the crowd. While it might even seem impossible, there are those that consistently beat the crowd. Some fantasy sports participants separate themselves through effort (on the waiver wire and in the trade market), but there are those that are consistently above average at drafting players or acquiring players in the auction. Some of these participants are just better at forecasting and I hope to find what makes them superior forecasters once I am done reading Philip E. Tetlock’s Superforecasting: The Art and Science of Prediction. Until then, and if we are not ourselves “superforecasters” (which is most of us), we are going to have to settle on beating the wisdom of the crowd in a different manner. So how do we do that?

We do that by understanding the ways the crowd tends to make mistakes. We are lucky in that fantasy leagues are only ten to 20 (or maybe 30) teams, which means the wisdom of these crowds is probably not as great as say the wisdom of a crowd of 2,000. Either way, people, and groups of people, make mistakes in predictable ways. That is why we over here at The Quinton have been discussing and applying the concepts of human behavior and strategy to fantasy baseball for the last two years. Because if we can understand why, for example, people might discount players that will limit their future decisions, such as David Ortiz taking up the only utility spot, we can understand why Ortiz has been undervalued for four straight seasons. If, for example, we can understand why people will tend to focus on upside at certain positions in later rounds, then we can happily take the less exciting players, albeit players with higher expected value, that the crowd leaves for us.

The point is not to simply to understand that the market is currently undervaluing Dellin Betances because the utility of knowing this will soon be obsolete; soon experts will mention that the market is undervaluing a particular player and then the market will correct itself, usually before our draft or auction starts. The point is therefore not to know a piece of information but rather to understand what is driving the market to undervalue a certain player or strategy. In being able to understand the cause, we are then better able to identify future motivating factors in real-time, we are then better able to identify unforeseen missteps by the crowd during our drafts and auctions.

The owners that are able to do this—to understand how and why the crowd errs—are the ones that are going to consistently beat the crowd. We should note that the crowd is usually not going to misstep, and most of the time we will have to take chalk if we are going to make the best bet at any given time. That said, the more we can identify the times when the crowd is being systemically influenced into misevaluation, the more we are going to be able to end up with the best “values.”

This process—the process of consistently understanding what is motivating our competition—is what will allow us to consistently get a small edge over our competition. This process is often a slow go with most of our efforts and hypotheses leading to nothing other than confirmation of the wisdom of the crowd. However, small crowds, like those we observe in drafts and auctions, will err, and we need the more ready we are when they do, the more successful we will be in our drafts and auctions. So let us keep studying the ways we err, let us keep honing our own decision making process, and let us hopefully be able to best the crowd a little bit more frequently than we did yesterday.

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