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Mdob Interesting article and I definitely think you're on to something here, but I'll quibble with a few of the details.
The problem with risk in the stock market or other investments isn't exactly that you might get less on the day you have to sell. With risk, you might get less and you might get more. But that's worse than what you'd get for a riskless asset with the same exact average return and the reason is that getting extra money isn't quite as useful as losing the same amount of money is bad. For example, if you make $50K per year, getting a $25K bonus would make you really happy, but losing your job halfway through the year (costing you $25K) would be absolutely devastating.
This works nicely for investments because the directions of the effects are the same no matter how much money you make. Getting an extra $25K is great, but losing $25K is worse than getting it was good no matter how much money you make. The same doesn't always hold for baseball teams. Going from 88 wins to 93 wins is huge and going from 88 wins to 83 wins hurts, but not that much. (Of course, 98 to 103 isn't as good as 98 to 93 is bad.)
The implication is that we'll see mediocre teams wanting (or accepting) risk more highly that good teams. If a team thinks it's going to win 95 games, they'll get the guy who will win them two more with no risk, but a a team that thinks it will win 90 games might prefer the guy that could win them 4 extra if he stays healthy and could cost them 1 if he doesn't.
Oh, and I'm a baseball crazed actuary, so... woo hoo.
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studes I agree with Mdob on this. I don't think "risk" is necessarily bad. If there are equal chances of a player's performance being higher or lower than projected, I don't think he's worth any more or less, except for several factors:
- If his projected performance is near replacement level, then a negative variance could be worse than the team's alternatives.
- If a team is near contention, then a positive variance would have more value than a negative variance would hurt.
- A third thing I thought of, but now forget.
I think the real point should be injury risk. That is only negative in nature and, what's more, is somewhat quantifiable. But only somewhat. Minor injuries can take a toll, too, and most people would never know about them.
THT: Sackmann: The New Inefficiency
BBTF's Baseball Primer Newsblog —
... THT: Sackmann: The New Inefficiency Too bad it ain t the number of N s a person has in his last name, or Jeff might be able to work out a contract for the league minimum.
Game of Risk
The Hardball Times —
... Game of Risk by Sal Baxamusa May 07, 2007 On Friday, Jeff Sackmann wrote a very interesting article on a "new" (untapped might be the better word) market inefficiency in baseball . My baloney detector immediately went off; ever since the publication of Moneyball , every few months somebody reads the tea leaves and declares a new inefficiency in the market. In Michael Lewis' book it was famously declared that on-base percentage was not valued properly by the market. Soon thereafter, it was pitching and defense. Then guys with bad clubhouse reputations, platoons and international free agents were all the rage. And in the not-so-distant future, people will declare market inefficiencies based on pitchers who are awesome only on Tuesdays, hitters who perform better against teams with left-handed first basemen... And so it was with a fair amount of skepticism that I read Jeff's article, in which he suggested th
Where the Inefficiencies Are
Knuckle Curve —
... Jeff Sackmann has an article up at The Hardball Times (full disclosure: I am a contributor to THT) called “The New Inefficiency.” In it, Jeff identifies risk acceptance as the current market inefficiency. Identifying and exploiting such inefficiencies is a key strategy employed by “small-market” teams to help reduce the effect of budgetary imbalances between them and their richer counterparts.
Nothing Was Delivered - Sunday Links and Injury Update
Bluebird Banter —
... Also in the Hardball Times, Jeff Sackman's article on "The New Ineficiency" takes a look at the market implications of using several oft-injured but decent-performing players to cover one or two roster spots. He specifically looks at Toronto's rotation in this context, but the article would be well worth your time even in the absence of Jay-specific content.
Monthly Roundtable: May 2007 (Part 2)
Ducksnorts —
... Geoff: There’s a lot to be said for depth, especially with Maddux and Wells in the rotation. Jeff Sackmann discussed risk management in an article at The Hardball Times and notes, among other things, that it’s possible to “lessen risk by putting your eggs in a lot of different baskets.” Bearing that in mind, I think having both Germano and Hensley available makes a lot of sense, and I’m not sure I’d be so quick to move either of them.
