Vichaara written by: Anjan Babu.S.
Vichaara edited by: Sanjana Sudarshan
Source: https://www.livemint.com/education/lessons-in-economics-from-the-ipl-auction-11704115984068.html
Author of Source Article: Vivek Kaul
The recently concluded IPL auctions made some big headlines, with two players breaking the previous bid record, and rumours and accusations of poaching players, making this edition of IPL more entertaining than expected for its loyal observers.
In the article, Vivek Kaul writes,
"So, there is a scarcity of money and there is a scarcity of players. In this scenario, the teams need to allocate money carefully to buy players they think can help them win the tournament.”
“Typically, every firm makes similar decisions at different points in time.”
“Money needs to be properly spent, and the right kind of employees and other business partners need to be recruited in the hope of running a profitable business."
To paraphrase, Kaul goes on to list down four lessons from this year's IPL auction:
1. Information
"Information is at the heart of economic decision-making. Take the case of Mitchell Starc— the Australian fast bowler, who was the most expensive buy of the tournament.”
Starc has great stats in T20, brings in the novelty factor as he is returning to IPL after 8 years and is not 'jaded' playing T20 cricket.
“The trouble is every team had this information on him and more. Which is why they went hard for him. Delhi Capitals, Mumbai Indians, Kolkata Knight Riders, and Gujarat Titans, all bid for him, until Knight Riders finally got him."
2. Potential
Less popular names went for big bucks this year, including Sameer Rizvi, Robin Minz, Kumar Kushagra, Shubam Dubey, and Spencer Johnson.
"Paying for potential still remains a process of trial and error.”
“Trial and error can work both ways. In that sense, IPL teams betting on newer players for their potential is like venture capitalists investing in startups, which, at the time of investment, do not have much of a track record but seem to have a lot of potential. Of course, that potential may not always come through, leading to IPL teams, like venture capitalists, burning their fingers."
3. The Winner’s Curse
"As Richard Thaler writes in 'Misbehaving—The Making of Behavioural Economics': 'When many bidders compete for the same object, the winner of the auction is often the bidder who most overvalues the object being sold.” The auction dynamic essentially ensures that teams end up overpaying for certain players."
"As Thaler writes: “When a team falls in love with a certain player, they are just sure that every other team shares their view. They try to jump to the head of the line before any other team steals that guy.”
“Of course, the winner’s curse becomes clear only post the tournament or during the course of it when a player does not perform well."
4. The Recency Effect
“The recent performances of players are more in the picture than their overall records."
"Take the case of Jharkhand’s wicketkeeper-batsman Kumar Kushagra. His T20 record is very average. In 11 matches, he has scored runs at an average of 15.6 per innings and a strike rate of 118 for every 100 balls. That’s a poor record. Nonetheless, what attracted the attention of the cricket scouts was an unbeaten 36-ball 67 runs that Kushagra scored in November against Maharashtra, helping his team chase a score of 355 runs in the 50-over Vijay Hazare trophy."
"The same stands true for Cummins as well, with teams going after him for Australia’s recent wins. Or take the case of Sameer Rizvi. He averages close to 50 in the 11 T20 appearances he has made for Uttar Pradesh, and he hit 18 sixes in the Syed Mushtaq Ali Trophy, the domestic T20 tournament organized by the Board of Control for Cricket in India. As Sportstar put it, he hit one six for every 11 balls he faced."
"In a way, the focus on recent performances makes sense, given that teams expect the players to carry on with the form that they are in when they play IPL from March to May.”
Bonus Lesson
"Economic decision-making doesn’t always lead to egalitarian outcomes. (Rinku) Singh has been in the form of his life, even hitting five sixes in five balls to help his team Kolkata Knight Riders win a game in last year’s edition of the IPL. He was bought by the Knight Riders for ₹55 lakh before the 2023 tournament. Of course, the irony is that Yash Dayal, the bowler Singh hit five sixes, was bought for ₹5 crore by Royal Challengers Bangalore. Who said life is fair?"