The Endowment Effect and Fantasy Baseball

I’ve been in a fantasy baseball dynasty league for a few years now. It’s a great time. We keep it competitive. We haggle over players. Best of all, it keeps me in contact with some buddies from college. We have a fairly substantial buy-in and payout to keep it interesting. If you win the league, you get about 10x the money you put in for the season.

This season has been a bit of a wash for me. I’ve had a few great offensive players (Javy Baez, Bryce Harper, Ronald Acuña Jr.), but my pitching hasn’t been all the great. I’m fairly mediocre in all categories, which has left me fighting for the last playoff spot with just an okay team.

Since it’s a dynasty league, I can keep four players based on a couple different rules involving when they were originally drafted and how long they’ve been on teams, etc. The conventional wisdom is that if you’re not going to be fighting for 1st or 2nd, you should likely ship off the assets you can’t keep for next year in exchange for future draft picks or players that are dynasty-friendly (original low draft spot but a high ceiling - think about a lesser-known rookie that’s flashed a lot of potential). When you trade to a team who’s a contender, they’re essentially sacrificing some of their long-term value for the short-term. This makes sense for all sides given the context. It’s tough to win a league, so if you’re team is positioned to do so it’s reasonable to exchange long-term potential for the short-term gain. If you’re out of contention, trade away your assets to teams that need to solidify their squad down the wire. It’s no use being in the middle - the team has a not-so-great spot to win the league but just enough to not totally throw in the towel. Think of this as your 2 or 3 last teams to make the playoffs. You usually end up not winning the league but not having any additional assets to show for it.

The trade deadline was the end of July. My team was currently in the last playoff spot with good momentum to end up there as the playoffs would start, but not a great shot at winning the whole thing. I’d likely bounce out of the first round of the playoffs. I had a blue chip player that was having a down year, but trending upward - the aforementioned Bryce Harper. Harper was an MVP in 2015, and is considered one of the best players in the game. He played on a team with great regular season success, which is a big contributor to statistics such as runs and RBIs, as they are correlated with how well a player’s teammates can get on base. Since he’s such a great player, our dynasty league has a rule that prevents blue chip players from being kept on a team for multiple years in a row. Each year, the players drafted in the top two rounds have to reenter the draft the next year. This stops someone from getting blue chip players and keeping them for the maximum number of years, preventing other plays from having them on their team. It would make the market for major players very illiquid. However, this rule makes these types of players good candidates for bad teams to trade to good teams in exchange for future assets - these players can’t be kept in the dynasty anyway, so if you’re not battling for the playoff prize then they don’t do much good as they can’t stay on your team the next year.

As July came to a close, I had a majority of the owners still in contention contacting me repeatedly about trades for Bryce Harper. I don’t have any personal attachment to him (he doesn’t play for the MLB team I root for). I knew I was likely not going to make a deep run in the playoffs. The smart thing was to trade him for a few draft picks - any additional assets I could get would be a plus, assuming that I wouldn’t be in the money this year. In retrospect, I ended up with some decent offers that one could argue were fair values for what Harper had produced up to that point in the season. However, at the time my valuation of Harper was at an entirely different tier than other owners. We did not see eye to eye on Harper. I could not let go of Harper. When contemplating the trades, I envisioned Harper going on a tear. He was such an asset! How could no one see that!? As the deadline came to a close, I had not exchanged Harper for future assets, the rational action I should have taken.

Recently, I was listening to a Planet Money podcast (I think it was Episode 859 but I can’t be sure) that briefly brought up the concept of the Endowment Effect. It’s a term used in behavioral economics to describe a situation where people attribute more value to things because they own them. The most well-known example of this was put forth by some of the thought leaders within behavioral economics, Richard Thaler and Daniel Kahneman, in which participants in an experiment were given mugs and the opportunity to sell the mug at a range of prices (the “Sellers”). A separate “Buyers” group was given the opportunity to purchase mugs within the same range of prices. A third “Choosers” group was given the option either receive a mug or the cash equivalent on the same range of prices. The “Choosers” group and the “Sellers” group were in the same economic position - at each price, they could either own a mug or have an equivalent cash value. It was consistently found that “Sellers” only parted with their mugs at higher prices than the “Choosers” was willing to receive a mug at. The “Buyers” followed a similar pattern, valuing the mug at a much lower price than the “Sellers” did. The final prices for each group: Sellers, $7.12; Choosers, $3.12; Buyers, $2.87.

I particularly like this explanation: “The endowment effect is a hypothesis that people value a good more once their property right to it has been established.” In essence, this is what I was doing with Harper. I was valuing a player at a much higher price than an owner without a player on his/her team would value, which is why many trade talks around Harper fell apart - we didn’t see eye to eye on the value of Harper, even though we were using the same objective stats to measure his value relating to this season. Most trade talks didn’t even come close revolving around Harper - many times an owner would offer players that I determined to be nowhere near the price I would be willing to sell Harper at. I’m speculating a bit, but I’m sure part of the reason was that those owners were valuing their own player at a higher value as they had that player on their team.

Well, the trade deadline passed without Harper being shipped from my team. That looks to have been the right decision on my part - since the end of July, Harper has ignited to the tune of 17 RBIs, 5 HRs, 14 runs along with a .993 OPS and .337 AVG, much better than the pace he was on before the trade deadline. Playoffs start tomorrow, so let’s hope the Endowment Effect helped me cash in on the 2018 Fantasy Baseball season.