In July of 2000 Baseball’s Commissioner, Bud Selig, assembled a panel of four experts to address the problem of payroll inequity in baseball. Three of the panelists, including conservative columnist George Will, concluded that the payroll disparities were hampering the small market teams. Perhaps some form of regulation was needed to restore order. The “logical solution” was to have the large market teams subsidize the small market teams. Paul Volker, a former Chairman of the Federal Reserve, was skeptical. He wondered how the Oakland A’s were able to win and improve year after year with one of the lowest payrolls in baseball. How indeed? That is the multi-million dollar question.
Michael Lewis’s book Moneyball: the Art of Winning an Unfair Game examines this thorny question in fascinating detail and furnishes a quite provocative hypothesis:
The rapidly expanding difference between the size of everyone else’s money pile and Oakland’s had no apparent effect. Each year the Oakland A’s seemed more the financial underdog, and yet each year they won more games. Maybe they were just lucky. Or maybe they knew something other people didn’t. Maybe they were, as they privately thought, becoming more efficient.
You don’t have to read very far into Moneyball to see that this book is not about the Oakland Athletics and baseball so much as it is about economics and market efficiencies (or more precisely market inefficiencies). It is a textbook study of how people, having adopted a certain way of looking at things, will resist new and better ways of looking at a problem, even if the new way leads to greater success and greater financial reward.
In the case of the Oakland A’s the ‘new way’ was statistics –more precisely, the rigorous analysis statistical information to achieve predictable benefits. For example, it was easily proven (through statistics) that drafting high school players was a fool’s errand; and yet, year after year, many big-league teams made this mistake. Why weren’t the teams able to learn from their past mistakes?
Statistics, which many regarded as the life blood of baseball, were actually viewed with suspicion by baseball regulars. Only a strange confluence of events created the atmospheric conditions that caused Oakland to use the power of math to spot opportunity. Meanwhile other teams blundered on, making decisions in safe and predictable ways that led to predictably mediocre results. And Oakland’s success was based simply on exploiting the inefficient thought-process that the other teams (including the ones with boatloads of money) were using.
It has to make you stop and think. Obviously this isn’t a problem that is confined to baseball.
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