Economics and the mid-life crisis have much in common: Both dwell on foregone opportunities

C'est la vie; c'est la guerre; c'est la pomme de terre . . . . . . . . . . . . . email: jpalmer at uwo dot ca

. . . . . . . . . . .Richard Posner should be awarded the next Nobel Prize in Economics . . . . . . . . . . . .

Thursday, September 08, 2005

Irrational Exuberance
and Irrational Expectations?

Craig Newmark wonders why first-round NFL draftee holdouts follow this strategy if they end up, on average, worse off:
Gregg Easterbrook argues that first-round NFL draft choices who hold out cost themselves lots of money. While more data would be welcome, I think Easterbrook poses an interesting question.

One part of the explanation might be that many highly-touted prospects, given injuries and ordinary "couldn't cut it," don't get a lucrative second contract. Another might be that establishing a reputation for being a tough bargainer is also worth a lot of money.
Another possible explanation might involve biased information and expectations. If a player is drafted in the first round, he is probably an extremely good player. He and his agent and his family and his college coaches all have extremely high expectations for him.

These friends and advisors expect little gain from being realistic and encouraging the player to be realistic in his negotiations because that is like telling him he isn't so good after all. Telling him that could easily lead to being dropped as a friend and advisor and member of the retinue and beneficiary of the big bucks.

So these folks, instead, have an incentive to encourage unrealistically high expectations. And when they do not come to fruition, it isn't their fault. They know the player is good; they keep telling the player he is good. It's somebody else's fault.

Eventually, though, won't some coaches get this empirical result across to the players? And once they do, won't being a hold-out be a more lucrative gaming strategy?
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