June 13, 2014
In-Season Strategic Agility
Earlier in the calendar year, I wrote about strategic agility on auction and draft day. Today, we discuss in-season strategic agility, which is really more about decision framing and sunk costs than actual strategy. We are at the point of the season where we should be deciding or at least analyzing if we should be buyers, sellers, or standing pat. There are serious obstacles to overcome when doing this critical (for fantasy baseball purposes) analysis, those obstacles being our past decisions. As many others and I have mentioned before, our desire to be right (not wrong) is often greater than our desire to optimize profit, utility, fantasy baseball glory, etc. When our past strategic decisions turn out to be wrong, we may very well find ourselves trying to make up for our mistakes instead of making the best decision based on where we currently stand. To overcome these obstacles we will take a look at how we come to face them, what causes us to fall victim to them, how we can overcome them, and how we can leverage sunk costs against our leaguemates.
Please allow me to start with an example and go from there. Example:
You headed into this season thinking you had a real shot at winning and, consequently, you traded some future pieces for some win-now pieces. On top of that, you were conservative with your raise decisions because you wanted as much auction money as possible heading into the auction. Now, 65 games into the season, you have legitimately no shot of winning or even coming close. What should you do? For the sake of this crude example, we should be selling or standing pat; however, given what we know about humans, many owners would continue to go for it, often taking on even riskier propositions in order to avoid “wasting” the traded future pieces and the missed raise opportunities.
What we have here folks are some real, live, honest-to-goodness sunk costs. The issue with sunk costs is that we (humans) view them as losses instead of costs. Losses and costs are just words, but the way each influences our decision-making is profoundly different. We tend to try and rectify our losses, while we tend to accept costs. This has significant consequences for strategic decision-making. To explain, let us check out some real talk from some good peoples, behemoths of decision making, Daniel Kahneman and Amos Tversky:
“Consider a person who has spent an afternoon at the race track, has already lost $140, and is considering a $10 bet on a 15-to-1 long shot in the last race. This decision can be framed in two ways, which correspond to two natural reference points. If the status quo is the reference point, the outcomes of the bet are framed as a gain of $140 and a loss of $10. On the other hand, it may be more natural to view the present state as a loss of $140, for the betting day, and accordingly frame the last bet as a chance to return to the reference point or to increase the loss to $150. Prospect theory implies that the latter frame will produce more risk seeking than the former. Hence, people who do not adjust their reference point as they lose are expected to take bets that they would normally find unacceptable. This analysis is supported by the observation that bets on long shots are most popular on the last race of the day (17).”
The negative outcomes of our fantasy baseball strategic decisions are the sunk costs of playing fantasy baseball, but we often incorrectly look at them as losses. In other words, like the losers at the racetrack at the end of the day, we often fail to change our reference point. Consequently, we will make suboptimal or “unacceptable” decisions, such as making trades to make a meaningless run at fourth place. This is not exclusive to the “go for it, but then underperform” scenario either. Sunk costs can hinder our decision making just as negatively when we choose to sell and then watch our teams over-perform. In this scenario, we will often decline selling the future for current production because we are sticking to our rebuilding process, and, consequently, can miss out on our best opportunities to win (right now). It should also be noted that the strategy that you are anchored to does not need to be the one you started the season with. Maybe after an awful April you decided to sell in early May, only to see your team come storming back. In this example, we may still be reluctant to go for it because we do not want to be criticized or “wrong” for selling to begin with. The point here is that the strategic decision we have to battle the most is usually the most recent one we made.
Queue the music, we have again entered, “So what? What do we do about it?” territory. More importantly, how can we ensure that we do not fall victim to the sunk cost trap? This brings us back Kahneman and Tversky. In the passage quoted earlier, the authors noted that the bettors fall victim to the sunk-cost trap when they “do not adjust their reference point.” That said, we need to always hit refresh on our reference point whenever making a strategic decision. Obviously, this is not enough though. Just saying, “we need to adjust our reference point and ignore sunk costs” is not helpful. We are great at tricking ourselves into thinking we are rational decision makers. We will tell ourselves things like, “I am going for it because I have Bryce Harper coming back from injury, my pitchers have underperformed, and it has nothing to do with trading away Byron Buxton in the offseason to make a run this year.” On top of that, we find ourselves to be very convincing. To combat all of this, I now keep a sunk costs list for every league I play in. This list includes actions, inactions, and opportunity costs. An incomplete list follows:
At first, it looks like such a list, by reminding us of our mistakes, could increase our chances of falling victim to the sunk-cost trap. Instead, by seeking out the evidence that our minds will use against us, we can at least label and try to section off such information, which is much more effective then ignoring it. Put differently, by bringing sunk costs out from our subconscious and into our conscious minds, we can at least know what we need to fight against.
Lastly, unless you play in a league against all robots, computer programs, or our lives and even baseball are some kind of version of The Truman Show, you are going to be competing against other humans, who also have a tendency to be afflicted by the sunk cost trap. Take note of the owners who might be trying to right the ship as they might be willing to take on the biggest risks of all a la our race track bettors, who feel as if they have the most to lose. People do not always fall victim to the sunk cost trap, but everyone does at least some of the time. The more we can avoid the pull of sunk costs on our own decisions and the more we can take advantage of their pull on our league-mates decisions, the better we will be at choosing optimal in-season strategies.