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Law School

: MoneyLaw

MoneyBall 101 for managers

By Jim Chen et al.

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During the InterACT San Francisco conference in May 2007, managerial consultant James Taylor nicely summarized the tenets of MoneyBall, as presented by Michael Lewis himself:

Michael [Lewis] said that writing about sports is a way to tackle broader issues. He particularly sees a value revolution in sports. The big problem is that athletes are paid huge sums yet the mechanism for assessing their value has not kept pace. . . .

What if these people were not athletes but regular employees? Despite all the data about the performance of these athletes they were still mis-valued. But who then could be mis-valued[?] Answer, anyone. People relying on subjective judgment:

Don't differentiate between luck and skill
Are often deceived by appearances
Have "fame bias" — 80% of MLB players could be replaced by a minor league player without a negative impact!
Have a number bias — as soon as you count something it becomes a fetish. For instance, creating a "save" as a statistic led to it becom[ing] a fetish and [Billy Beane's Oakland A's] would exploit this to drive up the value of a player
[Find it] [h]ard to commit to value [they] cannot see

Mark Rittman of Rittman Mead Consulting lauds MoneyBall as a prime instance of "competing through analytics" and using smart arbitrage:

The trick . . . was to spot what the true signifying statistics were, and this is where techniques such as regression came in as hundreds of amateur statisticians ran the numbers and tried to establish just what player traits and actions were most likely to lead to either runs being scored, or hitters being caught out. . . . [I]t?s a classic case study of an organization gaining competitive advantage through an analytical approach to their business.

All this is standard fare for longstanding fans of MoneyBall and MoneyLaw. Still, any moment in the Major League season in which the New York Yankees are closer to the basement than the division lead is a joyous occasion, and I thought I'd celebrate just a little today.

Full post as published by MoneyLaw on May 05, 2008 (boomark / email).