In the NFL’s annual draft the worst teams select rookie players earlier. This is done so losing teams will get the best players and keep the NFL balanced and competitive. Subsequently top draft picks are highly coveted by teams. Quickly glancing at the draft orders of the past decade reveals this line of thought to be flawed. As it turns out the same teams are continually at the bottom of the league and at the top of the draft. New research by Professor’s Cade Massey and Richard H. Thaler posits that the highly valued first pick in the draft is, on average, the least valuable pick in the first round.
In The Loser’s Curse: Overconfidence vs. Market Efficiency in the National Football League, Massey and Thaler compare the market value of draft picks with the actual performance of the players selected. They found that NFL teams overvalue the highest picks in the draft. Their analysis shows that players chosen early rarely perform well enough to justify the trade value of their pick and that players selected later in the first and second rounds offer the best value. Thaler and Massey note that psychological factors such as overconfidence, false consensus, and ‘the winner’s curse’ distort NFL teams’ ability to accurately predict the future value of the players they draft.
So how does the selection of world-class athletes relate to the world of leadership and organizational structures?
Massey and Thaler’s findings about the market for football players extend to any labor market where organizations select talent. Meaning their observations can help shed light on selecting new CEOs to newly minted graduates. In the world of business, too often we try to hit home runs: confident that one big hire or staff expansion will spur a team towards prolonged success. In doing so, we forsake consistency and reliability in the hope that a savior is on the way. As Bob Nardelli and Howard Stringer can attest merely being called a savior and actually being one are two very different things.
As Thaler and Massey write: “In our judgment, there is little reason to think that the market for CEOs is more efficient than the market for football players. Perhaps innovative boards of directors should start looking for the next Tom Brady (pick number 199 of 210) as CEOs rather than this year’s hot young prospect.”