A question of increasing interest to researchers in a variety of fields is whether the incentives and experience present in many ìreal worldî settings mitigate judgment and decision-making biases. To investigate this question, we analyze the decision making of National Football League teams during their annual player draft. This is a domain in which incentives are exceedingly high and the opportunities for learning rich. It is also a domain in which multiple psychological factors suggest teams may overvalue the "right to choose" in the draft; non-regressive predictions, overconfidence, the winner's curse and false consensus all suggest a bias in this direction. Using archival data on draft-day trades, player performance and compensation, we compare the market value of draft picks with the historical value of drafted players. We find that top draft picks are overvalued in a manner that is inconsistent with rational expectations and efficient markets and consistent with psychological research.Unwittingly, when leagues allow the worst teams to pick first, they may induce those teams to overpay for a top player, and hurt their own cause going forward. I contrast that to the European system, where there's no draft, and the best teams systematically overvalue players. Liverpool, for example, paid 19 million pounds for Robbie Keane and then sold him back to the same team a year later for 12 million. Keane's not the only one: Liverpool overpaid for players like El Hadji Diouf, Djibril Cisse, and others. Which is better for competitive balance? Bad teams may have stingy owners, so inducing them to overpay for good players and open their wallets may lead them to become more competitive. However, the best teams overpay because they can; it costs more for them to improve their team at the margin, but even though they're overpaying, they're still improving their team. In either setup, draft or no-draft, as long as players are mis-valued, there are arbitrage opportunities - in the draft, trade away the first pick, or without a draft, develop an excellent farm system, and sell players to other teams for absurd amounts once they become good. This is another reason why we should scrap the draft.
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I feel you, but I have a couple of points. first, its not only the first pick that goes to a bad team. There are usually a good 5 or 6 teams that are just as bad, and you usually get 4 or 5 players that turn out to be great NFL players down the road from that. second, the salary cap prevents teams from paying too much for a player, and this helps even out the teams over the long run. if you look at the only American sport without a salary cap(baseball), you can see the top teams are ALWAYS the top teams, and the yankees have dominated the sport since the early 1920s. this seems remotely similar to the trend that we see in european soccer, at least to me. The worst teams in the NFL right now, such as the Lions and the Rams, were extremely good teams in the early and late 90s, respectively. So I say the draft helps spread out young talent throughout the league. I mean, can you imagine if one team was able to get Wade, Melo, and LeBron to come to their team their rookie year?