Efficient Markets in Everything

by on September 25, 2011 at 11:39 am in Current Affairs, Sports | Permalink

Sabermetrics worked but “once the casino catches on to your card-counting tricks, you can’t prosper at the table for long.”

NYTimes: The A’s, meanwhile, have tumbled back to mediocrity: the team is on its way to a losing season this year, after compiling a record of 231 wins and 254 losses over the previous three seasons. Most of the innovations introduced or popularized by Beane have been freely adopted by other organizations, thus eliminating whatever stealth advantages he once enjoyed.

… He told me baseball is moving “back to an efficient market — albeit one with some random events that don’t offer perfect efficiency — where whatever you spend, that’s where you’re going to finish.” In short, the Yankees spend a lot and make the playoffs pretty much every year. The Pirates don’t, and they don’t. There are aberrations to this pattern, but the pattern itself is unmistakable.

But the more efficient baseball becomes as a market, I asked him, the worse it is for you, right?

“Oh, yeah!” he said, and laughed.

dearieme September 25, 2011 at 12:00 pm

He should try his methods in the Indian cricket league: the games have enough in common to hold out hope.

Adrian Ratnapala September 25, 2011 at 12:41 pm

If you mean the IPL, your problem will be that it is far more corrupt than baseball. The gangsters’ winnings have to come from somewhere, and that will probably be you.

dufu September 25, 2011 at 12:04 pm

For some reason it is often ignored that during the Moneyball timeframe Oakland had three young All-Star pitchers: Barry Zito, Tim Hudson and Mark Mulder. They were probably the best rotation in baseball at the time. None of them were drafted or developed using sabermetrics. They also had developed power-hitting shortstop Miguel Tejada (who was later found to have been juicing, but no matter).

Having three young pitchers pan out like that was an immense stroke of good fortune. Now this isn’t to say that the Moneyball stuff didn’t help, but I sincerely doubt they would have been as successful without those guys.

q September 25, 2011 at 12:11 pm

One thing you can say for “Moneyball” with respect to the Big Three was that it prevented the A’s from being forever crippled by three huge contracts for ultimately mediocre (Hudson) to bad (Zito and Mulder) players.

Honestly though, I’ve never been too impressed with the A’s drafting skills. For the longest time, however, Beane was a genius when it came to trades.

Nowadays, the best example of success on a low budget are the Rays. Yes, they had a lot of help from the many high draft picks they were allotted, but many other teams have been giving this advantage without much to show. And the Rays continue to make very smart moves in the Free Agent and trade markets.

Law Schools Lie September 25, 2011 at 3:58 pm

The baseball draft is a crap shoot. Lots of high picks go nowhere. Drafting well in baseball is as much luck as anything.

Stephen September 25, 2011 at 6:58 pm

Tim Hudson is mediocre? Reconsider.

RG September 26, 2011 at 7:48 am

Agreed. The Rays are the new standard bearer for small market teams. To even make the playoffs, they need to outcompete either the Red Sox or Yanks, and they’ve did that twice in the past 4 years, with the potential for a third this year.

Jonathan September 25, 2011 at 12:13 pm

Dufu: No one denies that Zito, Mulder and Hudson were important. Nor does anyone deny that having young, good pitchers who you don’t have to pay very much is a good thing for any baseball team. But, as befits a website devoted to marginal thinking, the question is what you do at the margin. Moneyball techniques improved the team, and did so by finding win-related qualities that were underpriced by the market. Cheap excellent starting pitching is not underpriced. Although the fact that Hudson, Zito and Mulder were all college pitchers is yet another Moneyball technique. College pitchers were traditionally undervalued in the draft because they were older… no longer.

happyjuggler0 September 25, 2011 at 12:16 pm

Beane blundered horribly in talking to Michael Lewis.

One of the keys to being part of the empirical evidence debunking the Efficient Market Hoax is to not talk about Fight Club, er, your superior methodology. Once everyone knows about it, it is no longer an edge….

FYI September 25, 2011 at 1:08 pm

How much money Beane is making with moneyball the movie?

He probably talked because he knew his idea was going to go mainstream anyway.

Yancey Ward September 25, 2011 at 4:11 pm

Yep, you gotta know when to cash out.

Claudia September 25, 2011 at 5:43 pm

To all your Moneyball spoilers and pooh pooh-ers on this blog: watch the movie (all the way to the END). You will see who really steals The Show. I was surprised, but not really. Glad the movie was not written or directed by an economist, but the econ student plays a nice, supporting role (sorry not the show stealer).

Nick September 25, 2011 at 12:27 pm

The “spend more win more” hypothesis seems to be more accurate in college football than in pro baseball. Looking back on the last 100 or so years the majority of pro baseball teams have had a championship of some sort. True the Yankees win more than everyone else, but teams like the Royals have had their day. In college football it’s the same damn dozen or so teams playing for a real chance at a national title every year. It’s like we pack the leagues with schools that don’t stand a chance at winning a national championship so as to give the big market teams something to bide their time between powerhouse meetings. And there’s no hiding the discrepancy between spending on athletics at the “winning” schools relative to everyone else.

MD September 25, 2011 at 7:02 pm

The limited pool of college football champs isn’t about spending – it’s entirely driven by a ridiculous polling system that relies on coaches (who don’t actually watch many other games), sportswriters (who are biased to their markets) and computers (who are programmed by idiot humans). The fact that a preseason poll exists, with no empirical knowledge of any team other than which players remain from the previous season, is one of the most absurd elements.

zbicyclist September 26, 2011 at 2:02 pm

“the last 100 or so years the majority of pro baseball teams have had a championship”

There’s only one exception, among teams which have been around for 100 years.


John Thacker September 25, 2011 at 12:45 pm

Some people in baseball drew the wrong lesson from Moneyball– they ended up overvaluing the players that Beane said initially were undervalued, because they were focusing too much on the idea of “this skill is useful” instead of the real key point of “this skill is currently undervalued.”

An interesting point that I saw made this year is that the Brewers succeeded by going against the curve. Sabermetrics and other things made fielding popular, so the Brewers reacted by zigging when others zagged, and going after players who could hit well but couldn’t field.

byomtov September 25, 2011 at 2:41 pm

Sabermetrics and other things made fielding popular, so the Brewers reacted by zigging when others zagged, and going after players who could hit well but couldn’t field.

I had not heard that before, but I can believe it. In a way, it exploits an inefficiency of its own. Sabermetrics’ big weak spot is measuring defensive skill, so maybe you could say the Brewers were taking advantage of the fact that other teams tended to undervalue players with bad defensive numbers, because those numbers were not good measures of value.

D September 26, 2011 at 3:10 pm

Bill James has said he thinks defense is overrated. He says it loses important as you move up in the leagues. In Little League, defense can have a huge impact. In the pros, while errors can produce runs, they won’t yield as many as at lower levels.

Cliff September 25, 2011 at 11:41 pm

Implausible. Sabermetrics is far beyond that. It is a mature methodology now that incorporates an understanding of its limitations. It is just the best method for evaluating players. No one is going to succeed by going “against” sabermetrics. The Yankees now employee 20 “sabermetricians” full time.

BillG September 25, 2011 at 1:38 pm

For a stark example that the “baseball market” is not yet fully “spend more win more” efficient, see the Tampa Bay Rays and Jonah Keri’s The Extra 2%.

Cliff September 25, 2011 at 11:42 pm

It is much more efficient, but still far from efficient. You still have many things being done due to tradition, when they are known to be suboptimal (for a minor but obvious example, lineup order).

James C September 25, 2011 at 3:40 pm


thats a baseball site that is dedicated to Sabermetrics. as a hardcore baseball fan, the site is just so damn fascinating. id love to see what Tyler’s thoughts are on it, and anyone else on here for that matter.

TheUnrepentantGunner September 26, 2011 at 11:23 am

Regular reader and commenter there. Some of the authors are excellent, some are interesting and some are wrong and hacks.

The real treasure there is the data, including the PitchFX technology which tracks every pitch going back 6 or 7 years by pitch type, and can show you what happens when a given pitcher throws his curveball, and how often people swing and miss at it versus his sinker lets say.

The increase in the amount of data makes it a wonderful treasure trove if nothing else, and allows for laypeople to conduct research that previously would have been impossible.

The story of sabermetrics continues to involve, there are still inefficiencies, mostly they get smaller and smaller of course, and there are still a few teams with drunken sailors as general managers who are there to plunder, with some other gm’s being forced into sub-optimal decisions, or rather, decisions that are optimal for the circumstances they are in.

The best case is the brewers, they know that they are losing one of their best players (prince) this winter since they cant pay him, so they gave up alot of depth and some degree of potentially useful talent for 2012-2015 (particularly Lawrie) to acquire other short-term talent, to make one push with a small budget to try and make a run.

Once teams get to the postseason, they are 40% to win a series even if they are somewhat outclassed. So at worse, the brewers have given themselves i’d say a 7-8% chcance of winning it all, which isn’t bad, and the actual chance could be as much as maybe 3-4% higher.

Andy September 25, 2011 at 3:56 pm

The correlation between spending and wins is pretty weak. Of course a big reason for that is the draft system which forces players to play for tiny salaries for 6 years. And drafting good players is fairly random.

For example this year the top 9 teams by payroll are the Yankees, Phillies, Red Sox, Angels, White Sox, Cubs, Mets, and Giants. Out of those we’ll see only 2-3 make the playoffs. That’s not very impressive. The Twins have a chance to lose 100 games (they are at 98 now) spending $112 million vs. the Royals losing 90 games spending $36 million (the lowest).

Law Schools Lie September 25, 2011 at 4:09 pm

Your list overlooks that the Yankees, Red Sox, and Phillies all spend a lot more than the rest of the league (Phillies fan here). The Red Sox at #3 are spending a 1/3 more than the White Sox at #5. The Yankees at #1 are the only $200m payroll, and they’re spending 90% more than the Twins, at #9.

I think the real argument in your favor is the laughable fate of the Chicago teams. Chicago is, by far, the biggest market in the center of the country. It has comfortably supported two teams for a long time and has considerably more power, population, and wealth than the rest of the central locations: Minneapolis, St. Louis, Kansas City, Pittsburgh, Cleveland, Milwaukee, etc. Yet the White Sox and Cubs are both bad teams. The White Sox won the series in a fluke run a few years ago, but outside of that, neither team has been in the Series for decades.

Careless September 25, 2011 at 4:35 pm

Of the 8 you list of them 3 will make the playoffs and 2 will finish second or third in the wild card standings. The Mets and Cubs are suffering from long term incompetence at the GM position (as a Cubs fan, Hendry’s firing was some of the best news I’ve gotten all year) and the White Sox had a ton of things go wrong this year (although 92 wins wasn’t going to happen)

tom September 25, 2011 at 8:18 pm

Bad analogy by the NYT author and Beane: it’s not like dealers figuring out your (against the rules) card-counting and preventing it; it’s the other players figuring out your (permissible) strategy and copying.and co-opting it.

Rachel Jeane September 25, 2011 at 8:19 pm

Centives recently did an analysis of this to find out that there are sill undervalued players in MLB and that you can still make a winning team that’s significantly cheaper, and expected to have more wins, than the biggest ones: http://www.centives.net/S/2011/the-centives-line-up-as-inspired-by-moneyball/

Cliff September 25, 2011 at 11:45 pm

That is just stupid. Those players are cheap because they are under team control and have not hit free agency. It has nothing to do with them being “undervalued”- they have not had the chance to have a valuation placed on them yet.

msgkings September 26, 2011 at 1:14 pm

+1. Good point.

chev September 26, 2011 at 1:56 am

Any kid playing Strat-O-Matic baseball in the 1970′s and 80′s knew far more than many GM’s about certain aspects of player evaluation and came to similar conclusions as Billy Beane.

1. On-Base percentages were more useful than batting average. MLB commentators and managers loved the guys with the high batting average, calling them a “pure” hitter. Yet you’d look at their Strato card and realize that this guy “sucks”. The low batting average high walk/power guys were quite underrated. Darrell Evans was a prime example of the latter. According to Wikipedia, sabermetrician Bill James describes Evans the most underrated player in baseball history.

2. ERA is misleading, as there is a certain random element involved. (HR, walks and hits allowed were a better judges of a pitcher ability when playing the game. Later research indicated that expected ERA was really a function of strikeouts and walks/HR permitted and that hits allowed did not offer much predictive value. For the Strato player, hits allowed were fixed and this important, but in terms of predicting future performance hits allowed did not offer much insight.)

I should have been a GM in the 70′s.

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