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Considering Sunk Cost

In the world of business/management theory there is something called the “Sunk Cost Fallacy.” It, like most theories in the business world in my experience, is rather intuitive and can be concluded from common sense and logic. However, that doesn’t mean people follow it – hence it being something taught in intro business classes. Basically, the sunk cost fallacy is a description of how we, far too often, will stubbornly follow through, or continue on, an endeavor because of time or resources already invested in something even if or when the continuing costs are not worth the benefits (or potential benefits).
So, why the heck am I telling you about this obvious yet often ignored mistake we make throughout so many situations in life in a fantasy baseball article? Because we do the same thing here.

Fantrax has a handy feature under the history of every player if you pull up their player card where you can see the transaction history for a player- see for example when I click on Andrew Vaughn in one league and see the details of a trade and – if I scrolled down see other information as well.vaughn image

Looking at this can be helpful in seeing how someone else added a player to their roster in terms of how they might value them. Because, no matter how we might have added a player to our roster – especially if it was done through a trade, that acquisition cost tends to inform how we think about a player.
I know I’ve heard this before when I inquire about a player, but sometimes people will cite what they gave up for a player as a reason to either not trade the player or to establish what it should then take to acquire that player. Normally this only happens if a player’s perceived market value has dropped, since if the market value increases on a player then of course the acquisition cost is going to be higher than what it took for the manager with the player to get the player.

We often hear about this in the fantasy world as buy low and sell high, and this obviously all connects since, in many ways we treat players in a fantasy context like stocks, assets to buy and sell, to get value etc. And while there is obviously a glaringly ethical problem with talking about players (both in fantasy and, even more so, in real life) from the perspective of being an asset or resource rather than a human person. Of course, unlike a major league team trading someone, in fantasy, you are pretty much trading the rights to a string of code and a player’s stats, not a real human who has a life, potentially family, responsibilities, and emotions, etc.

So, what is the important thing for us as fantasy managers to keep in mind with this? First, of course, if you are trading away a player whose value, or at least perceived market value, has dropped, you shouldn’t trade them if you think that that market value is too low, indeed, that’s when you should look to potentially acquire that player. However, we also need to be careful about not falling into the sunk cost fallacy and thinking about how much you have traded away to get a player if someone else is interested in acquiring them. Whether it is days, weeks, months, or even (though less likely) across seasons, you need to evaluate the player completely separately from what you may have given up to add that player to your team.

Now, of course, if it is only days then something should have had to DRAMATICALLY change with that player for your evaluation to have changed dramatically, so unless you thought you stole the player in a trade or overpaid, the relative value should be the same. However, just like you can consider selling a stock at a loss if you are confident that the stock will not rebound at all, selling low on a player is not always bad if you think that low is only going to go lower.
As you can see if you look at Eric Cross of Chris Clegg’s rankings and the changes that occur when new rankings are announced (or see them live on the Toolshed Patreon), you’ll notice that a players rank, which is a good gauge for the perceived market value of a player, changes all the time.

So, the moral of the story here is to ignore any past cost and decisions made around a player when considering them in other moves because it doesn’t matter what you paid, or didn’t, in the past, only what that player is “worth” in a trade at the moment you make it. Happy trading and not falling into fallacies!

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