It’s a classic Fantasy Football situation. Team A has an extra running back, but only one startable wide receiver. Team B has an extra receiver, but only one startable running back. It’s a fantasy match made in heaven, but somehow they’re not able to agree on a trade. How is it that certain seemingly simple trades don’t materialize, and other trades that do happen sometimes end up really one-sided? The answer could be found in common decision making fallacies, namely the endowment effect, regret aversion, recency bias, and anchoring.
The endowment effect can cause you to overvalue something that you own, simply because you own it. One study showed that people can value items that they own twice as high as similar items that other people own. It would be pretty hard to get a trade done when you value your bench warmer twice as highly as the rest of the league. One way to reduce the endowment effect would be to imagine if you did not own any of the players involved in a potential trade. Distance yourself from them, and then you can try to evaluate the players’ merit in an unbiased way.
Regret aversion is a related concept. No one wants to be mocked by the rest of the league for trading away a player who immediately becomes a superstar. However, there is a cost to avoiding regret, and that cost is the potential increase in performance you are giving up by not doing a trade. It is important to be able to “pull the trigger” on a trade once you see potential value. Both the endowment effect and regret aversion are two biases that can work to discourage you from making a trade that could really help your team.
Recency bias and anchoring can act as matchmakers for two trading partners or just as easily drive a wedge between them. Recency bias causes people to overweight the most recent few games, whereas anchoring can cause people to overweight old information that formed their initial opinions, such as pre-draft projections. Fantasy sports, and football in particular, have so much variance that “what have you done for me lately?” shouldn’t be the only consideration. At the same time, there can be fundamental shifts in a player’s value (injury to the player or his teammates, changes in offensive schemes, etc.) that need to be used to adjust your pre-draft values. Learning about the specifics of each situation is key to knowing how to weight different pieces of information.
Understanding decision making errors can allow you to effectively buy low and sell high in your fantasy leagues. Though these biases can be hard to eliminate altogether, awareness of common errors is crucial in order to make good trades, both in financial markets and in fantasy sports.