Back in 2006, when he was hired to run the Houston Rockets and figure out who should play pro basketball and who should not, Daryl Morey had been the first of his kind: the basketball nerd king.
Did it help a player to have two parents in his life? Was it an advantage to be left-handed? Did players with strong college coaches tend to do better in the NBA? Did it help if a player had a former NBA player in his lineage? Did it matter if he had transferred from junior college? If his college coach played zone defense? If he had played multiple positions in college? Did it matter how much weight a player could bench-press? “Almost everything we looked at was non predictive,” says Morey.
How could you deny yourself the chance to watch him play? But while it was interesting for his talent evaluators to see a player in action, it was also, Morey began to realize, risky.
During the 2011 NBA lockout, when a dispute between players and owners caused the whole league to shut down for several months, Morey enrolled in an executive education course at Harvard Business School and took a class in behavioral economics.
Morey talked about it with his staff, and they were on the brink of not doing the deal when one of the Rockets executives said, “You know, if we had the pick we’re thinking of trading for and they offered Lowry for it, we wouldn’t even consider it as a possibility.” They stopped and analyzed the situation more closely: The expected value of the draft pick exceeded, by a large margin, the value they placed on the player they’d be giving up for it.
Morey thus became aware of what behavioral economists had labeled “The endowment effect.” To combat the endowment effect, he forced his scouts and his model to establish, going into the draft, the draft pick value of each of their own players.
In Morey’s ten years of using his statistical model with the Houston Rockets, the players he’d drafted, after accounting for the draft slot in which they’d been taken, had performed better than the players drafted by three-quarters of the other NBA teams.