research
Initial Public Offerings of Ballplayers
- Publication date
- Publisher
Abstract
As a field study of choice under uncertainty, we examine baseball teams' investments in amateur players. Though most prospects fail to deliver any return on their multi-million dollar signing bonuses, returns on the minority who succeed easily offset these losses: the expected annual yield on the median first-round draftee is 33 percent. However, the pattern of returns is inconsistent with market efficiency. Yields are lower for high schoolers than collegians (27 percent vs. 43 percent), lower for pitchers than position players (24 percent vs. 41 percent), decline for later round long-shots, and may be negative under competitive bidding.Market efficiency; Bounded rationality; Prospect theory; Winner’s curse