May 13, 2015

The Quinton

Please Spend Your FAAB

by Jeff Quinton

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I believe something about FAAB spending and waiver-wire activity. I believe that people do not spend their FAAB quickly enough and that they are not active enough on the waiver wire, especially early in the season. So, more accurately, I believe a bunch of things. Around this time last year, we took a look at two behavioral factors that contribute to fantasy baseball participants not being as liberal with their FAAB spending or as active in the waiver pool as is optimal. In my biased opinion, I think the entire article is worth a read, but we can get the gist from the following quote from the article:

Two things about people: (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 result in gains. 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.

In addition to the above, my esteemed colleague, Nick Shlain, wrote but yesterday about how action is often needed now if we want to give our teams a chance at making a title run this year. Nick writes:

It’s the middle of week six of the season, and all that should mean is there’s plenty of time left for your team to come together and make a run at a fantasy pennant. But you must actually plug your team’s holes, whether they are on the pitching or offense side.

(I am doing a lot of recapping here, but it is all good stuff, so hopefully we can enjoy it and learn from it.) Nick concludes:

Perhaps your auction or draft didn’t go exactly how you planned, but that doesn’t have to be the end of your season. Be aggressive in identifying and addressing your team’s needs and you too can finesse you pitching staff into contention.

All this said, there are also strategic or game theory factors that indicate that early season aggressiveness in FAAB or free agency is possibly even more beneficial than highlighted in the above discussion. We will thus take a look at these factors in the rest of this article.

1. Beat In-Season Inflation

We can define in-season inflation as the increased acquisition cost (FAAB) or increased difficulty in acquisition (waiver pool) of free agents as the season progresses. Now we could certainly find in-season deflation if teams blew all of their FAAB early (the acquisition costs of free agents would decrease as the season progresses), but given how owners actually spend their FAAB and given the behavioral factors noted in the above quote, I have only ever witnessed in-season inflation, and I am going to make the assumption that most other leagues experience in-season inflation as well. The consequence of in-season inflation is that it is costs less to acquire the same level of production earlier in the season than later in the season. This, in turn, means that it is in our best interest to spend early in the season (if our league has in-season inflation). Now maybe your team is so good and has such great injury luck that no action is needed. If that is the case, then good on you. If that is not the case, then we are better off spending a couple extra FAAB dollars early in the season than having to pay inflated prices later.

Lastly, while the effects of in-season inflation are most obvious in leagues with FAAB-style free agency, it also happens in leagues with non-FAAB-style free agency, in leagues with a simple drop/add format. In-season inflation happens in these leagues when all or most teams decide it is time to drop their disappointing players. If we can preempt these busier weeks by acting sooner, then we are more likely to add impactful players to our roster because there will be less competition for players.

2. Avoid Revolving Doors

In an ideal world, every player we pick up in free agency provides an immediate and long-term solution to the hole we are acquiring them to fill. Unfortunately, this only happens occasionally. While we (people) are all flawed at predicting the future (thus making life interesting), we do know that the crowd tends to forecast better than the individual. We have usually looked at the “wisdom of the crowd” as it relates to FAAB to say that the person who wins the FAAB bid tends to overpay (in that the most likely value for the player is the average of all the bids). This is famously called the winner’s curse. This, however, is probably a flawed way of framing FAAB decisions in that our only goal should be to get the most production out of our FAAB budget as possible. Therefore, another way of looking at the wisdom of the crowd as it relates to FAAB is to say that the player that gets multiple bids is more likely to be productive than the player that receives fewer bids. Put differently, the player that we outbid other bidders for is probably more likely to be a viable solution (less likely to be a stop gap) than is a cheaper player that no one else has any interest in acquiring.

Paying up early in the season for one of the “more desired” free agents also allows us to have a better chance at avoiding a revolving door, that being a roster slot you are replacing each week. The point of all this is that while many of our instinctive behaviors will tell us not to spend those few extra FAAB dollars early in the season, spending those few extra dollars upfront can save us from having to spend more in the long run.

I now leave you with some repeat advice.

Repeat Advice: Know Your League and Be Opportunistic

As mentioned earlier, your league may very well not have any in-season inflation and your competition might very well have properly filtered out the previously described behaviors from their decision making process. If that is the case, while the concepts described are still helpful to understand, the actionable takeaways will certainly be different. This is ultimately about being opportunistic—we want theory to allow us to ask better questions, not dictate action. Just as saving our FAAB for down the road is less effective if all of our leaguemates employ the same strategy, so too is spending early if all of our leaguemates are doing the same. The point of this article, like many of my articles, is not to say, “do this, not that,” but rather to provide us with better tools for framing and making decisions. It is tough out there, but hopefully we can get a little better.

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