J.C. Bradbury emails me on the allocation of talent

I hope you are doing well. I have a Micro III question that I thought might interest you. I often have such Tyler questions, but keep them to myself, yet this morning I decided to share with you.

What does Jeremy Lin tell us about talent evaluation mechanisms? This article ( http://www.wired.com/wiredscience/2012/02/what-jeremy-lin-teaches-us-about-talent/?utm_source=dlvr.it&utm_medium=twitter ) argues that the standard benchmarks for evaluating basketball and football players at the draft level are flawed. The argument is that Jeremy Lin couldn’t get the opportunity to succeed because his skill wasn’t being picked up by the standard sorting procedure. This got me thinking.  Baseball sorts players in a different way than basketball.  In professional basketball (and football), college sports serve as minor leagues, where teams face a high variance in competition (the difference between the best and worst teams in a top conference is normally quite large), with very little room for promotion. There is some transferring as players succeed and fail at lower and higher levels, but for the most part you sink or swim at your initial college. This is compounded by the fact that the initial allocation of players to college teams is governed by a non-pecuniary rewards structure with a stringent wage ceiling, which likely hinders the allocation of talent.  At the end of your college career, NBA teams make virtually all-or-nothing calls on a few players to fill vacancies at the major-league level.  In baseball it’s different. Players play their way up the ladder, and even players who are undrafted can play their way onto teams at low levels of the minor league. At such low levels, the high variance in talent is high like it is in college sports; however, promotions from short-season leagues through Triple-A, allow incremental testing of talent along the way without much risk.  I have looked at metrics for predicting major-league success from minor-league performance and found that it is not until you reach the High-A level (that is three steps below the majors) can performance tell you anything.  Players in High-A who are on-track for the majors are about-the age of college seniors.  Performance statistics from Low-A and below have no predictive power. Baseball is also much less of a team game than basketball, so this should make evaluation easier in baseball but it is still quite difficult by the time most players would be finishing college careers.  Also, a baseball scout acquaintance, who is very well versed in statistics, tells me that standard baseball performance metrics in college games are virtually useless predictors of performance (this is contrary to an argument made in Moneyball).  Even successful college baseball players almost always have to play their way onto the team.

Back to Lin. He played in the Ivy League and his stats weren’t all that bad or impressive in an environment that is far below the NBA. If Lin is a legitimate NBA player, he didn’t have many opportunities to play his way up like a baseball player does.  In the NBA, he experienced drastic team switches, and even when making a team he received limited opportunities to play. MLB teams often keep superior talent in the minors so that they can get practice and be evaluated through in-game competition.  An important sorting mechanism for labor market sorting is real-time work.  Regardless of your school pedigree, most prestige professions (lawyers, financial managers, professors, etc.) have up-or-out rules after a period of probationary employment where skill is evaluated in real world action. Yes, there is a D-League and European basketball, but the D-league is not as developed as baseball’s minor-league system, and European basketball has high entry cost and may suffer from the same evaluation problems faced by the NBA.  Thus, I wonder if the de facto college minor-league systems of basketball and football hinder the sorting of talent so that the Jeremy Lins and Kurt Warners of the world often don’t survive.  Thus, another downside of these college sports monopsonies is an inferior allocation of talent at the next level.