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August 21, 2014

Fantasy Freestyle

Information, Humans, and Errors in Valuation

by Jeff Quinton


Seemingly out of nowhere, it has become “I was wrong” season for the Baseball Prospectus fantasy team. First, Craig Goldstein wrote about undervaluing Starling Marte, and then J.P. Breen wrote about undervaluing Yovani Gallardo. Both articles do an excellent job analyzing what each author missed regarding the specific player. What I hope to look at today is not what was missed about a specific player, but rather what parts of human behavior cause us to err when forecasting player production.

In order to do so, let us take a look at forecasting and what humans do when forecasting. My favorite definition of forecast (the verb) is from Merriam-Webster and it goes, “to predict after looking at the information available.” I like this definition because it is convenient for my article. I also like it because it highlights that our forecasts are dependent on “the information available.” Relatedly, in Thinking, Fast and Slow, our main human, Daniel Kahneman writes, “An essential design feature of the associative machine is that it represents only activated ideas.” Put differently, we cannot take into account that which we cannot imagine. I am throwing around a lot of combinations of words right now, so please allow me to simplify all this:

When forecasting, we often limit ourselves to using the information available and what we are able to imagine.

Whether we undervalue or overvalue a player, we often do so because we underestimate the chances of an unexpected outcome. The consequence of this is thus overestimating the chances of an expected outcome. Usually this mistake has zero negative consequence because expected outcomes are more likely to occur than unexpected outcomes. However, the more frequently we make this mistake, the greater our chances of being on the wrong side of an unexpected outcome.

Based on what I have observed, underestimating the chances of an unexpected outcome manifests itself primarily in two ways in fantasy baseball: (i) overestimating perceived trends and (ii) overestimating rookie performances. These errors are then compounded when combined with (iii) confirmation bias.

1. Overestimating perceived trends
Our brains love trends and patterns. In fact, they are wired to not only recognize trends, but to create them. This is often a good thing (for instance, in recognizing a threat, such as a drunk driver), but can often create blind spots. We often see this in the veteran discount for older players who many fear will cease to be productive; or in the premium paid for prospects based on the assumption they will continue to linearly improve. We also see this with the price paid for consistency, or perceived consistency; for example, the player who you can bank on to play 160 games until you cannot.

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<< Previous Article
Premium Article Skewed Left: Saber Sem... (08/21)
<< Previous Column
Fantasy Article Fantasy Freestyle: Wee... (08/21)
Next Column >>
Fantasy Article Fantasy Freestyle: Adj... (08/22)
Next Article >>
Fantasy Article Fantasy Starting Pitch... (08/22)

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