Is buying low and selling high a mirage? How do you apply second level thinking in the fantasy trade market? Here are some things to think about when dealing with trades.
Mike Podhorzer actually raised the question to me about whether “buy low and sell high” is a useful tenet. After some consideration I think he is right; against tougher competition it is a mirage. So I wanted to address this as well as tie it in to an article I wrote last year about trading “Lemons and Cherries.”
In the typical league trading is essentially a single level thought process. By that I mean that you and your opponent try to match up values, positions etc and try to work out a deal.
This is a “first-level” thinking process. You do not need, in most leagues, to think about anything more than how your team and the other team fit together. You do not need to worry about your opponent using a “second-level” thought process, which is to consider what your opponent is thinking about. Things are pretty much as they seem.
One of the rules that most owners try to follow is to “buy low and sell high.” As with many other maxims of fantasy baseball, this principle really exists only in the ether. Once you get into leagues where you have better competition or higher stakes you see that buying low and selling high is a mirage. It is virtually impossible to do this against good competition; they know exactly what you know.
Here we now must consider “second-level” thinking, which raises an interesting economics concept, the “Lemons and Cherries” concept.
The 2001 Nobel Prize in Economics was given to George Akerlof, A. Michael Spence and Joseph Stiglitz, who had the following idea: suppose in a population of cars, some will be defective lemons and some will be reliable cherries. The owner of the car knows, from repair bills, which is which, however the buyer does not. This disparity in information results in the market having many more lemons than cherries. So if you are buying a car it is far more likely, no matter what information you have, that you are buying a lemon!
Why? The owner of a lemon will try to sell it but the owner of a reliable cherry will have little incentive to sell. Does this principle apply to the fantasy baseball trading market? I think it clearly does, but not in the exact same manner as the used car market; though some trading partners may come off like used car salesmen.
In the fantasy context the main source of determining whether a player is a “lemon” comes from information. Fantasy players all have access to some powerful information of their own to use, on the injury front and because of his or her more detailed analysis of a player’s statistics.
Let’s for argument’s sake consider Geovany Soto a “lemon” using first level thinking. That is, most owners see him due for a fall and a relatively big one. An example of a “cherry” might be Robinson Cano. Cano has an 88% contact rate and a 6% walk rate. His expected batting average is .267, about 100 points higher than his actual batting average. Looking deeper at his rates he appears to be a cherry. There is a clear explanation for his struggles; he has been unlucky with a 17% hit rate.
So we have Geovany Soto as a lemon and Robinson Cano as a cherry. So, using first-level thinking this is a reasonable view. But let’s say you are in a league with a strong owner who is an expert. You approach him for a trade for Cano and he is willing to sell him for fifty cents on the dollar.
Do you think you got a steal? I hope not. When looking at what owners are willing to trade you see what they really think, and with any trade the skill of your opponent must be considered. An owner selling Cano for “half price” can be looked at in two ways. The first is that he is foolish and doesn’t understand values or regression to the mean or hit rates.
Since we have, for the purposes of this example, dictated that the tradee is a strong, expert owner then it should be clear that he is not foolish. So the second way to look at it is that he is trading a “lemon.” He is acting on information that butts the conventional “first-level” wisdom. He has some reason for thinking that Cano will not regress to the mean and that he is primed for a bad season. You may not know why and you may not know what information he has. But as sure as can be you can bet this is a bad trade for you.
8 responses so far ↓
1 Brian Joura // May 9, 2008 at 7:35 pm
I’m all for respecting a fellow owner in trade talks. But I think there has to come a time where you don’t give your opponent too much credit. If I’ve done the proper research and I’m interested in Cano and he’s willing to sell him for 50 cents on a dollar, I make that trade, whether the owner is the expertest expert of all experts or if he’s bozo the clown.
2 Jonathan // May 10, 2008 at 11:30 am
Maybe I’m just dense, but this article makes little sense.
“This disparity in information results in the market having many more lemons than cherries. So if you are buying a car it is far more likely, no matter what information you have, that you are buying a cherry!”
In my book if there are “many more lemons than cherries” if you are buying a car its more likely to be a lemon because people who have good cars aren’t selling them.
Second, I like how you say that Cano’s hit rate is unlucky. A slump is a slump something will snap him out of it I’m just not willing to believe it’s going to be luck.
Lastly, this article fails to take into account what a team’s needs are in a trade. If you have Cano and lets say Fielder/Howard, you might be willing to wait for one of them to start hitting does that mean this is a bad trade for you, not if you get someone who can produce for your team. It’s short-term vs. long term planning not the simplistic argument the author is trying to make. Besides at the beginning of the season nobody knows who’s going to be good and who isn’t, it’s a matter of who values a certain player more and midseason trades are no different.
3 Jonathan // May 10, 2008 at 11:33 am
Maybe I’m just dense, but this article makes little sense.
“This disparity in information results in the market having many more lemons than cherries. So if you are buying a car it is far more likely, no matter what information you have, that you are buying a cherry!”
In my book if there are “many more lemons than cherries” if you are buying a car its more likely to be a lemon because people who have good cars aren’t selling them.
Second, I like how you say that Cano’s hit rate is unlucky. A bad hitting is bad hitting something will snap him out of it I’m just not willing to believe it’s going to be luck. It may be a change in batting strategy or something more fundamental like bad mechanics.
Lastly, this article fails to take into account what a team’s needs are in a trade. If you have Cano and lets say Fielder/Howard, you might be willing to wait for one of them to start hitting does that mean this is a bad trade for you, not if you get someone who can produce for your team now. It’s short-term vs. long-term planning, not the simplistic argument the author is trying to make. Besides at the beginning of the season nobody knows who’s going to be good and who isn’t, it’s a matter of who values a certain player more. Midseason trades are no different.
4 John Hammon // May 10, 2008 at 11:08 pm
So is it impossible to trade with a smart owner? I actually just traded for Cano. I dealt J.Santana for Cano, Snell, Percival, and K-rod. He was mostly trying to acquire a top keeper (his team has tanked.) but he’s one of the best owners in the league. However I also think I’m one of the league’s best owners, and I think highly of course, of Santana. Couldn’t we both just be trading different cherries?
5 Easy // May 11, 2008 at 8:24 am
great advice
6 Doug Hopping // May 11, 2008 at 11:59 am
The idea here isn’t about whether or not you make the trade or are getting a bad deal. I think Patrick just overstated it a tad. The principle is at stake is that no opponent gives you that disount without thinking that it’s beneficial for him, and if that opponent is an expert, then they probably have a well founded opinion for thinking so. It doesn’t mean they’re right, just that you might have missed something.
7 JR // May 11, 2008 at 5:24 pm
@Jonathan.
The theory is misstated here.
8 Patrick DiCaprio // May 12, 2008 at 12:27 pm
Jonathan, you are not dense that was a typo, it should be lemon! thanks for pointing it out.
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