Moneyball

Tag: Moneyball

Lawrence Today Links

The new Lawrence Today showed up in my mailbox today, and as promised I have provided another few hundred words on the dynamics of the college wage premium.  You can click here to read my post on what exactly “composition-adjusted log real wages” means, along with a discussion about the trajectory of U.S. wages over the past 50 years.

For those of you interested in learning more about Michael Lewis’s Moneyball, my short review is here via the Economics Department Newsletter (if you are interested in getting on the distribution list for the newsletter, let one of us know). Here on Briggs 2nd and across campus we’ve talked quite a bit about Moneyball. For a taste, here are some discussions about how Moneyball might apply to higher ed, whether Major League Baseball is competitive, and why we should perhaps require kindergarten transcripts.

If you are looking for something that might pique your interest in economics, here are some suggestions:  First, one of our all-time most popular topics for classroom discussion is the problem of moral hazard.  I would also recommend the posts on the dynamics and continuing evolution of the publishing industry (who knew that an Oprah recommendation actually decreases overall book sales?).  Finally, if you are looking for something meatier, check out our (well, my) book recommendations.

Thanks for stopping by.

More on Moneyball

It’s good to see that Bill Simmons at ESPN is giving economists their due by providing space for Tyler Cowen and Kevin “Angus” Grier’s occasional meanderings.  This week, Cowen and Grier discuss whether “Moneyball” (that is, reliance on quantitative techniques) still works in Major League Baseball.

Certainly, this is a topic we’ve covered here extensively. Oh, and here, too!

Bottom line: Entrepreneurs create value and can earn short-term profits. Can they earn long-term profits?  Well, what are the barriers to entry?

Why Go to College?

With reunion upon us, it is an excellent time to ask, “why go to college?”  Indeed.  To help us out with that question, Louis Menand has a provocative piece in a recent New Yorker examining the ins and outs of  this exact question.  As I got a few paragraphs into this one I started to wonder why this question gets discussed so rarely. It hardly seems self-evident, but I would guess it’s some combination of “expand your mindset,” “expand your skill set,” and “expand your wallet.”

Of course, Menand is a more eloquent writer than I am, and he posits two theories, with the first one going something like this:

College is, essentially, a four-year intelligence test. Students have to demonstrate intellectual ability over time and across a range of subjects. If they’re sloppy or inflexible or obnoxious—no matter how smart they might be in the I.Q. sense—those negatives will get picked up in their grades. As an added service, college also sorts people according to aptitude. It separates the math types from the poetry types. At the end of the process, graduates get a score, the G.P.A., that professional schools and employers can trust as a measure of intellectual capacity and productive potential. It’s important, therefore, that everyone is taking more or less the same test.

That seems like a riff on the “expand your wallet.”  The second has more to do with expanding horizons:

College exposes future citizens to material that enlightens and empowers them, whatever careers they end up choosing. In performing this function, college also socializes. It takes people with disparate backgrounds and beliefs and brings them into line with mainstream norms of reason and taste. Independence of mind is tolerated in college, and even honored, but students have to master the accepted ways of doing things before they are permitted to deviate. Ideally, we want everyone to go to college, because college gets everyone on the same page. It’s a way of producing a society of like-minded grownups.

At Lawrence, we recruit students based on our mission in the liberal arts, so I’m not sure if you could pigeonhole us into either of those categories.  But we certainly make the claim that we train people to think and communicate, which are not explicitly vocational skills, but do come in handy.

Menand is certainly sympathetic to our cause, here and elsewhere, and makes some interesting points about our students.  One is the results of the Collegiate Learning Assessment — a test designed to see if students learn anything in college:

The most interesting finding is that students majoring in liberal-arts fields—sciences, social sciences, and arts and humanities—do better on the C.L.A., and show greater improvement, than students majoring in non-liberal-arts fields such as business, education and social work, communications, engineering and computer science, and health.

Well, that’s reassuring.
Definitely worth a read if you are interested in higher education.

Is Major League Baseball Competitive?

A couple of final words on the summer I&E Reading Group selection, Moneyball.   As was argued by Michael Lewis, Billy Beane capitalized by exploiting what appeared to be a market inefficiency.  Indeed, economists Jahn Hakes and Skip Sauer found empirical support for this proposition .

An interesting question, then, is why other teams didn’t innovate via these quantitative techniques sooner? In an archived EconTalk interview with Professor Sauer, Russ Roberts suggests that Major League Baseball may well not be a competitive industry. That is, owners are “playing a different game” and that the costs of having a bad team aren’t really that high.  In fact, Roberts argues (at about 28:00), the absence of competition would allow owners can indulge stupid management practices without a significant hit to the bottom line.  It would also allow teams to do things like discriminate on the basis of race, or simply not aggressively try to win, where the costs would not be that high. When is the last time a team went bankrupt? Or sold at a steep discount?

That’s an interesting point because a standard economics argument is that competitive markets are quick to punish firms that fail to adopt best practices. Firm that adopt racist or sexist hiring or compensatory practices will loses out to those that don’t.  And the larger point, of course, is that robust competition pushes firms to innovate, or at least to adopt practices once others have done so.  In the context of baseball this is transparent.  When there was a color line and African Americans were excluded, then teams didn’t suffer for their racist practices.  However, once teams started to sign the best African Americans players, then racist policies had a price; that is, teams that didn’t discriminate on the basis of race had access to the best African-American ballplayers — refusing to sign Willie Mays doesn’t help your chances of winning.

Sauer also addresses Steve Levitt’s criticisms (which I share) about the source of the A’s dominance was actually their dominant starting pitchers (at about 38:00).  Sauer responds that, regardless of the reason for the A’s success, the numbers seem to show an inefficiency on the offensive side.

You can also catch Roberts interviewing Michael Lewis on the topic of Moneyball.

Does Moneyball Apply to Kindergarten?

David Leonhardt has set the kindergarten teachers’ portion of the internet afire with his provocative New York Times piece, “The Case for $320,000 Kindergarten Teachers.”  He cites some recent research that finds unusual importance of the kindergarten year to adult outcomes, and in particular the importance of good teachers.

Students who had learned much more in kindergarten were more likely to go to college than students with otherwise similar backgrounds. Students who learned more were also less likely to become single parents. As adults, they were more likely to be saving for retirement. Perhaps most striking, they were earning more.

Mr. Chetty and his colleagues estimate that a standout kindergarten teacher is worth about $320,000 a year. That’s the present value of the additional money that a full class of students can expect to earn over their careers. This estimate doesn’t take into account social gains, like better health and less crime..

That $320,000 figure is what has set the internets ablaze with kindergarten teacher good cheer, along with the usual trenchant observations about the pay disparity between teachers and, say, professional athletes. One would expect a economics blog post to go through the caveats of demand and supply setting wages, problems identifying good teachers and firing bad teachers, and these sorts of issues.

I was thinking along different lines. In the past two weeks, our Innovation & Entrepreneurship Reading Group has been thinking about the Moneyball Hypothesis and how it might apply to higher education.  For example, what sort of metrics might we incorporate to identify promising collegiate talent? Here’s a thought — rather than relying on SAT and ACT scores for admissions, why not require kindergarten transcripts?  This could easily be accomplished by simply asking for all school transcripts instead of relying on the high school transcript.  If Chetty and company are right, this could be just the route to go to identify some of those diamonds in the rough.

Also see The Economist‘s brief writeup.

UPDATE: It looks like graduate schools have beaten me to it.

Who Takes the Summers Off? I&E Reading Group Announces Its Summer Selections

Given the dwindling attendance in my courses, either the weather has become appreciably better, Midwestern style, or Professor Finkler is giving another macro exam. Both are sure signs that summer is just around the corner.  That means it’s time to unveil the Innovation & Entrepreneurship Reading Group‘s summer books.

The first book comes recommended from Professor Garth Bond, who offers us Moneyball: The Art of Winning and Unfair Game.  I’ll let him tell you about it:

It’s a bit off the beaten path, but it is a great  read and certainly raises questions about innovation in a decidedly different context: Michael Lewis’s Moneyball.  If you’re not familiar  with it, it’s basically a book about the sabermetric revolution in  baseball, focusing on Billy Beane and the Oakland A’s in the early 2000s.  It is decidedly about the difficulties involved in introducing  innovation into baseball, exploring where and how new ideas arose and  how they actually came to be implemented (and ultimately copied).  I  think it might be particularly interesting because many of us have a  hard time thinking of sports as just another industry, so that it can  challenge our abstract theories by applying them to matters of the  heart.  The other nice thing about the book is that it is extremely  approachable and short.

That is a clear winner.

If you are still on the fence after that, consider that Hollywood is (potentially) making a movie version of the book that will star Brad Pitt.  Here is a review — of the book, not the movie — from the San Francisco Chronicle.

The second book is The Marketplace of Ideas: Reform and Reaction in the American University by Louis Menand.  This is a provocative piece about why although academics tend to be liberal as a bunch, but institutional change within the academy is slow going.

Menand is a brilliant writer, and the book certainly adds much to the discussion of  “how can we at Lawrence be more innovative.”  Here is the review at Slate that tipped me off to the book.

Also a clear winner.

The tentative meeting date for the faculty group will be in late July.  You should be able to find out more right here on this blog, or on our group site on The Moodle. In early July, I will begin “live blogging” and posting some associated content. As was the case with the first book, any students interested in reading should let me know so we can get together to discuss it.

Those of you not interested in the I&E Reading Group might find some of these useful.