Gustavo Ballvé on May 9th, 2010
Food for thought, Home, Mental models, Portfolio Management

A study by Richard Thaler et. al. shows that first-draft picks in the NFL usually underperform and don’t represent value for the money, but still time and time again the teams fight for that spot thinking they will make the right choice.

Overconfidence and inefficient markets happen anywhere – it’s only human. For more on independent thinking applied to sports, just click on…

Michael Lewis’ “Moneyball” deals with this subject in the Baseball arena, but it’s a great read for people interested in independent thinking in general.

But for a quicker look at what he means with the book, this 2009 NY Times article is a good read (it’s about basketball). Our impressions on it, pretty much copied-and-pasted from our Intranet:

  • Page 2: Defining the problem: What does it even mean to play basketball the right way? The Houston Rockets’ owner questioned that and said: “We now have all this data, and computers to analyze it. I wanted to use that data in a progressive way.”
  • Page 3: Defining adequate metrics: Do current metrics matter? What are we going to measure that will help us solve the problem defined earlier? What is really relevant?
  • Page 4: Aligning interests: That’s when they started writing correct incentives into the players’ contracts, according to the metrics they defined in the previous step.
  • Page 5: It’s the process, stupid! The quote to rule them all: “Knowing the odds, Shane Battier can pursue an inherently uncertain strategy with total certainty. He can devote himself to a process and disregard the outcome of any given encounter.”

Michael Lewis does it again by finding the “value investors”/ analytical-minded managers and players in professional sports. His Moneyball book was pretty amazing, but this article summarizes the issue perfectly. By the way, here’s the link to a review by Michael Mauboussin for that book.

The point: Analytical thinking is not just about making sense of existing data, it is about questioning the very assumption that this data is in any way useful, questioning accepted beliefs, common knowledge and easy conclusions. It’s about QUESTIONING.

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