Yale School of Management

The Loser's Curse in the NFL Draft

In the National Football League’s annual player draft that will begin on April 22, the worst performing team in the league has the benefit of choosing first in the draft. The idea is that by giving losing teams the early picks they can acquire the best players and become winners next season. Although top draft picks are highly valued by teams, research by Professor Cade Massey of the Yale School of Management and Professor Richard Thaler of the Booth School of Business at the University of Chicago finds that the coveted first pick in the draft is, on average, the least valuable pick in the first round.

In their recently updated paper "The Loser’s Curse: Overconfidence vs. Market Efficiency in the National Football League," Massey and Thaler compared the market value of draft picks with the actual performance of the players selected with those picks. They found that NFL teams regularly overvalued the highest picks in the draft. Their analysis shows that dollar for dollar, players picked early rarely perform well enough to justify the trade value of their pick and that players selected from late in the first round and in the second round offer the best value for performance.

The authors suggest that previously studied psychological factors such as overconfidence, false consensus, and the winner’s curse may distort NFL teams’ ability to predict the future value of the players they draft.

Massey and Thaler speculate that their findings about the market for football players could extend to other labor markets where organizations select talent, such as CEOs and new graduates, whose future performance also can be difficult to predict. “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) as CEO rather than this year’s hot young prospect,” they write.

Thaler recently summarized the paper’s findings in the New York Times Economic View column "When a First Pick Isn’t the Best Pick."