Moneyball Economics

by Elaine Schwartz    •    Sep 27, 2011    •    2556 Views

A wonderful baseball movie, Moneyball is also about economics.

The story focuses on the Oakland Athletics, a second-tier baseball team with a small budget. A speedy runner? A homerun hitter? The stars cost many millions that Oakland just did not have.

Faced with a futile future, the Athletics general manager, Billy Beane, realized a good team need not be about star players. Instead of individuals, it was actually about the whole team’s ability to win. And that meant looking more closely at why teams win. Beane concluded that it meant getting on base. And that meant walking was as valuable as hitting. It meant recognizing the small stuff that most people ignored.  It required processing countless stats and avoiding the human response on which baseball scouts depended. And it worked.

Listening to the “bean counters,” Beane put together a team of unknowns that together almost produced a championship.

In this fascinating NPR Fresh Air podcast, Michael Lewis talks about his book Moneyball.

The Economic Lesson

In the stock market, when buying a house, or when putting together a baseball team, price matters. People who identify a resource that is undervalued have the best chance of achieving success. For securities and home buyers, success means prices rise after you buy your asset. For Billy Beane, it was acquiring valuable players for a price he could afford.

This returns us to the role of prices. Prices convey information. Sometmes, though, goods and services are mispriced. Then, very wise people can benefit before the market realizes its mistake.

Billy Beane soon faced the problem that his undervalued players would gain value. And then, again, he could not afford them.

An Economic Question: In addition to undervaluing an asset, sports economists have said that Moneyball is about Joseph Schumpeter’s creative destruction. Do you agree? Explain.

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