Wednesday, March 18, 2009

Perhaps Bill Simmons Should Read Greg Mankiw

I refrained from poking fun of Bill Simmons after he embarrassed himself in a recent podcast with Chuck Klosterman. But when I heard the Sports Guy make an elementary economics mistake during his podcast with National Football Post's Mike Lombardi, I knew I had to call him out.

The error occurred during a discussion on Cleveland Browns QB Brady Quinn, who the Browns traded up* to pick in 2007. Lombardi suggested the Browns might think about drafting a new QB this year.

*It cost them a 2007 second-rounder and 2008 first-rounder.

Simmons--interjecting that the VP of Common Sense had to step in--said that he didn't think that would be a good idea:

I think it's too early to give up on Brady Quinn. I just don't think he played enough. And I still like him, I like the way he carries himself. I'm not willing to write him off yet, especially after all they gave up for him.

That may be the "common sense" decision, but it's not the economically smart one.

The investment to draft Quinn, as anyone who has taken Econ 101 can tell you, is a sunk cost. You've already traded the picks and can't recoup them, so they should not weigh on how you make any decisions. It makes no sense to keep playing Quinn in the future just because you paid a lot to get him in the past.

Simmons comments, though, highlight one of the problems with basic economic models -- they assume people are rational. In this case, there are plenty of people that, just like Simmons, would have too much pride or emotional attachment in a past decision to recognize these investments are sunk costs and that it makes economic sense to move on. In economic theory, this sounds stupid, but in practice, it happens all the time. For instance, haven't you ever sat through a movie you hated just because you bought a ticket to it?

Maybe this needs to be required reading.


Dan said...

Simmons said HE wasn't giving up on Quinn because of how much the Browns gave up for him. Maybe he was saying he trusts the Cleveland brass who made the pick, and that's why he still believes in Quinn. That would be economically smart, no?

Jack said...

In the context of the extended conversation -- which I did not transcribe -- I'm pretty sure I'm correct in my interpretation. And given Simmons antipathy for almost all management, I doubt he trusts many front offices, especially the Browns old one.

As for whether it would make economic sense if you were correct, it seems odd that he would use a two-year old evaluation of Quinn -- and assume the Browns paid fair value from him -- to make a decision about him now.