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Wednesday, August 16, 2017

Applying Asset Pricing Theory to MLB – The Hardball Times

Interesting. She doesn’t quite get what replacement level is, however.

Jim Furtado Posted: August 16, 2017 at 07:54 AM | 4 comment(s) Login to Bookmark
  Tags: sabermetrics

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   1. Rally Posted: August 16, 2017 at 08:57 AM (#5514305)
Replacement level is RC+ of 86.7 - I can accept that for argument's sake.

This model is telling me I should prefer a low risk player with a 90 over an average risk player at 96, or a high risk player at 100. I don't buy that.

Actually, I can buy that perfectly in the world of finance. I don't want to lose money and can accept a lower average return and expected lower net worth for the tradeoff of not going broke. I just don't think it works in baseball though. Unlike finance, the .500 season is not an ideal outcome. To me it is barely better than a .450 season. Either way I miss the playoffs. In baseball I want the big returns than give me a chance to play deep into October.

Beyond that, good luck assigning a Beta coefficient (risk of those who don't RTFA) to a ballplayer. Let's say you have these two first basemen, and here are their RC+ for the last 3 years:

Steady Eddie: 120, 115, 125
Wild Bill: 85, 160, 110

Assume equal playing time each year, age, etc. put it into a Marcel formula and both have an expected RC+ of 118 for next year. Obviously, Eddie has been more consistent over the last 3 years. But can you infer from that that he will have a lower variance in performance going forward?

Possibly, but I am unaware that this has ever been demonstrated.
   2. Rally Posted: August 16, 2017 at 09:02 AM (#5514307)
Even if you are able to quantify the risk/variance of a player, and it is predictable, is a low risk player a good thing?

I would say that a low risk, well above average player is a good thing, especially to a high talent club.

To a small market team who can't afford the highest ranked talent, high risk would be a good thing. A low risk crappy player is not going to get you anywhere. Give me the guy who might be terrible, but might also turn into something good.
   3. Zach Posted: August 16, 2017 at 07:04 PM (#5514781)
To a small market team who can't afford the highest ranked talent, high risk would be a good thing. A low risk crappy player is not going to get you anywhere. Give me the guy who might be terrible, but might also turn into something good.

I heard this forever when the Royals were bad, but I don't think it works that way in practice. You end up hitting on one guy every couple of years, but you can't benefit from it because you've got three lineup holes full of other roster experiments that didn't work out.

The way to benefit from risky guys is to make them role players, and only expose them to situations where their skills are well above average.
   4. the Hugh Jorgan returns Posted: August 16, 2017 at 07:15 PM (#5514795)
The way to benefit from risky guys is to make them role players, and only expose them to situations where their skills are well above average.


Didn't RTFA but that's the 2nd part of the equation, isn't it? How you are managing your higher end risk? If you subject the riskier investment to a situation where it is more likely to succeed then you can minimise the risk inherent in the investment through a series of solid management decisions. The more clever clubs will be much better at this then others. Regularly successful low payroll clubs are obviously doing this already.

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