Behaving Economically?

I've been reading a lot of books on behavioural economics and decision making lately. Can't say I'm any smarter as a result, fact is I'm often rather confused when any math symbols pop up, but there certainly have been numerous studies, anecdotes and learnings that will come in useful as idle chatter at my next cocktail party*.

As I'm sure many of you do, when I'm reading a book on game theory, artificial intelligence, foreign policy or behavioural economics I like to ask myself: what could this mean for the Toronto Maple Leafs?

Ok, maybe that's just me...I'm not sure if my Leaf filter is a genuine problem or if it's a heuristic that helps my aging brain better understand the subject matter at hand. I'd like to think it's the latter...

Out of the reading I've been doing lately, a few items have stayed with me and do seem to have some sort of application to the world of sport:

1. Herbert Simon's early work on problem solving and production systems;
2. Anchoring, especially as it applies to pricing;
3. Discounting (Hyperbolic v. Exponential); and
4. Favourite longshot bias.

Decision Making and Player Development

I've been a big proponent of the Leafs keeping their youngsters in developmental leagues for as long as possible. Not only does it give the players the opportunity to play big minutes in every situation (PP, PK, ES, etc.), it can also extend waiver eligibility, often doesn't exhaust a year of the player's entry-level contract, and if the player is in the CHL, their contract doesn't count against the 50 player limit.

In the late 1950s, Herbert A. Simon was exploring "solution by recognition" and the following passage made me question the best way to condition a young athlete, like say a Nazem Kadri...

One can train a man so that he has at his disposal a list or repertoire of the possible actions that could be taken under the circumstances...A person who is new at the game does not have immediately at his disposal a set of possible actions to consider, but has to construct them on the spot - a time- consuming and difficult mental task.

The decision maker of experience has at his disposal a checklist of things to watch out for before finally accepting a decision. A large part of the difference between the experienced decision maker and the novice in these situations is not any particular intangible like “judgment” or “intuition.” If one could open the lid, so to speak, and see what was in the head of the experienced decision-maker, one would find that he had at his disposal repertoires of possible actions; that he had checklists of things to think about before he acted; and that he had mechanisms in his mind to evoke these, and bring these to his conscious attention when the situations for decisions arose.

Most of what we do is to get people ready to act in situations of encounter consists of drilling in these lists into them sufficiently deeply so that they will be evoked quickly at the time of the decision.”

I think your typical sports talking-head would refer to the experienced decision-maker as a "wily vet"and the challenges of the novice as "rookie errors." But what it comes down to, is ensuring players have a thoroughly developed and refined repetoire of possible actions.

Of course, the big question remains: is this accrual of experience and list-building best done at the AHL or NHL level?

Anchoring

Anchoring refers to the core information an individual refers to when making an initial decision. Individuals often have a habit of over-relying on a single trait or a single piece of information in their decision making process. This is especially true when it comes to our understanding of value pricing, for example:

People tend to have an "anchor" price for most products, and judge them in relation to that anchor. For example, if you expect a laptop computer to be about $1,000, the $750 model might look like a bargain, but if you were anchored on $500, it'll seem expensive. Some products have very stable anchor prices (milk, bread), others change often (most electronics).

Dan Ariely has some great writing on how established prices set an initial value that consumers are usually unwilling to move from.

For years, sports teams in weaker markets, especially those with attendance problems, have given away tickets. While that tactic may generate revenues through increased concession sales, parking, souvenirs, etc. it may create a larger challenge: it effectively establishes the value of a game ticket as $0.

If you're a Panthers fan and can get free tickets by showing your Florida State drivers license, the Panthers have effectively established the value of their tickets as $0. How many people would be willing to pay the face value to attend the next game?

I think the anchoring is one of several challenges facing the Toronto Blue Jays.

For years, Toronto was awash in free Jays tickets through sponsors, potential sponsors, vendors, give-aways, etc. As a result:

1. All of these comped tickets were included in the attendance counts, inflating the Jays' attendance numbers; and
2. For many baseball-going Torontonians, it established the value of a Blue Jays ticket as $0.

I'm a walking case study in anchor pricing: I've rarely paid to go to a Jays game, getting my fill of free tickets each year, and the last time I took my family to a ball game, it cost me $28 for four tickets at Safeco.

I've clearly established my anchor price for major league baseball and it's going to be tough, if not impossible, to get me to pay $22 for an awful bleacher seat at the Dome, never mind shelling out $44 for field level seats.

Looking at the dismal attendance numbers, I get the feeling I'm not alone.

Discounting

The two types of discounting that are particularly interesting to me are hyperbolic versus exponential discounts.

Not to beat the Phil Kessel trade to death, but I think it's a good fit here. In discounting, there is a tendency to prefer immediate payoffs to those that may take time to realize - immediate needs outweigh anything distant or abstract. Or as Greg Muller so nicely puts it:

The core question is how people penalize various options for having a ‘delayed payoff’. Would you rather have $30 now and $50 in five years? Implicit in the decision-making process is that later payoffs aren’t worth as much. You might need the money now more than later, or there’s a risk you won’t get the money later, due to death/bankrupcty of the source/etc. The drop in value of a payoff due to the delay involved is called the ‘delay discount’....[people] tend to over-prefer options with more immediate payouts, which should be no surprise to anyone who has interacted with humans before.

I have no idea if any of this entered into the decision making process behind the Kessel trade, but considering the Leafs have traded away 50% of their first round picks in the last decade, I have to think there's some sort of discounting going on as the team prefers to address immediate needs at the cost of a supposedly uncertain future.

The Favourite Longshot Bias

I'm not much of a gambler. For my NCAA bracket this year when I came across matches that were simply too close for me to call I turned to Vegas sports books and chose the team with the better odds. I finished in the top third of the pool (well back of the money) but, more importantly, I once again lost to my NCAA basketball loving wife.

I had presumed that by turning to an informed audience, that is people who bet on sports, I might have a better chance at winning or at least getting an informed opinion.

But then I started reading about the favourite longshot bias, the tendency for gamblers to over-bet on longshots and under-bet on favourites (this approach would have been rather fruitful in the first few rounds of the NHL playoffs, especially in the East).

One of the reasons suggested for over-betting on longshots is that gamblers are enamored with risk.

Once again, putting on the Leaf filter, I think the favourite longshot bias partially explains why GMs acquire players in decline. Case in point: was there a longer-shot at recovery than Andrew Raycroft? The phrase "longshot" doesn't go far enough to define the odds of him ever returning to Calder Trophy winning form, yet three GMs have employed him in his post-Boston decline (two of whom are no longer GMs).

In terms of risk, his decline in price (and term) certainly helps explain why Mike Gillis would ink Raycroft to a deal.

So called "risk-love" (the opposite of risk-aversion) is often associated as the cause of over-betting on longshots and certainly explains Raycroft's UFA contract in Colorado.

Unfortunately, neither value nor risk-love explain JFJ's terrible deal to acquire Raycroft.

Which leads me to the other rationale often cited to explain the longshot bias: bettors misunderstand, or simply cannot understand, probabilities.

I think JFJ is firmly in the latter camp, possibly because he was a rookie GM unfamiliar with "solution by recognition" and he miscalculated the discount by preferring the immediate solution of an NHL starting goalie in 2006 to the longer-term payoff of developing Rask into a better starting goalie in 2009...

As for my reading habits, I'm reading George Orwell's Essays and am in the midst of a brilliant piece on Charles Dickens, but for the life of me I'm struggling to figure out what it has to do with the Leafs....

*more likely to get me really weird looks at the grade school doors as I wait to drop-off/pick-up my kids.

Rattled by the Rush: A look at Kessel's Numbers

When rumours first surfaced that the Leafs were interested in Phil Kessel there seemed to be three big concerns:

• Would the Leafs overpay (Kaberle and Kadri);
• Was Kessel's above average goal production the result of playing with Marc Savard; and
• Was his shooting percentage sustainable?

I'll leave the matter of value and overpayment for another day (my thoughts on this are pretty well documented already).

The charge that Savard was the catalyst for much of Kessel's production was pretty much dismissed when Kessel potted 10 goals in his first fifteen games. A comprehensive video review of each and every one of Kessel's 2008-09 goals by Arhimedies over at Leafs Blog Pension Plan Puppets also punched a pretty big hole in any suggestion that Kessel was dependent on Savard.

The third concern, unfortunately, has emerged as a real issue at the half-way point of Kessel's first season with the Leafs.

In Kessel's breakout year in Boston, when he notched 36 goals (pro-rated 42G/82GP), his shooting percentage was 15.5% and his goals scored per 60 minutes was a very impressive 1.97. On average, he directed 3.1 shots per game at the opponent's net, and hit the net 71% of the time.

In his first 38 games in Toronto (small sample, I know) Kessel's on pace for 28 goals (pro-rated 32G/82GP) his shooting percentage is 8.7% and his goals scored per 60 minutes is down to 1.2. On average, he's directed 4.5 shots per game at the opponent's net, and he's hitting the net 68% of the time.

Also of note: Kessel is averaging 3 minutes more ice time per game in Toronto, yet his production has declined.

Or cleaned up in and put in a boring old chart, it looks like this:

	Boston	Toronto
TOI/G	16:33	19:48
PP TOI/G	2:22	3:37
Total Shots	216	171
Missed Shots	62	54
Shots on Goal	154	117
Accuracy	71%	68%
Shooting %	15.5%	8.7%
Goals	38	15
Goals/60	1.92	1.2

There are many possible explanations for Kessel's numbers in Toronto to be trending down:

1. His teammates aren't getting him the puck in prime scoring areas like Savard may have;


2. The lack of depth among the Leafs forwards means teams can key in on and defend Kessel;


3. His production on the power play has always been minimal. He's averaging 3:37 a night on the PP, that's 1:10 more perr game than he played in Boston and that extra minute is entirely non-productive ice-time;


4. He missed the first 11 games of the season recovering from off-season shoulder surgery;


5. Some combination of the top 4 plus others than I'm not clever enough to think of.

Regardless of the reason for the decline in his production, I have a feeling Kessel will improve his shooting percentage - both in terms of hitting the net and, more importantly, scoring. (Ironically, in a post populated by numbers, I base that on nothing more than gut. And as a cup-is-half-empty Leaf fan, it feels really weird to be predicting something good.)

One way to get Kessel jump started might be to re-allocate his ice-time.

Kessel is so unproductive on the PP it seems to me he should skip the PP and take extra shifts at evens (or at least move to PP2).

**Based on a couple of emails this post generated, let me be clear here: I am not questioning Kessel or saying he's a problem or part of a problem. I honestly find these stats interesting, I was genuinely surprised when I pulled the numbers this afternoon. I really hope he puts up huge numbers in the remaining 32 games of the season and well into the future.**

Matt Stajan: Putting a Price on #14

Matt Stajan is having a career year playing on a line with Phil Kessel.

Stajan's emergence comes at an interesting time. As a pending UFA in a contract year one has to wonder if the Leafs can afford to keep him or, given his chemistry with Kessel, can they afford to let him go?

One unintended consequence of landing Kessel could very well be Stajan getting priced out of the Leafs' plans.

Boxcars

Before Kessel was healthy enough to join the Leafs, Stajan was putting up points at an 0.58 per game (ppg) rate. Good for a 48 point season. Since being given the plumb assignment of centering Kessel, his production has nearly doubled to a very impressive 0.98 ppg. Pairing up with Kessel has put Stajan on pace for 65 points with career highs in both goals and assists.

Determining Value

I have no idea what transpires between players, agents and GMs, but with Stajan on pace for 65 points this year, all signs point to a hefty raise. Factor in a thin crop of UFA centres – demand exceeding supply – and it's a safe bet that Stajan will be Oprah rich.

In order to get an idea of the compensation Stajan might be in line for, I took a look at the types of contracts signed by Stajan's peers in 2009, that is unrestricted free agent forwards, in their 20s, that scored in the 50 to 65 point band. Here's a quick look at Stajan's comparables:

Nik Antropov, career high 59 points – signed a $4M/year deal in ATL
Johan Franzen, career high 59 points – signed a $3.95M/year deal in DET
Travis Zajac, career high 62 points - signed a $3.88M/year deal in NJ
Tumomo Ruutu, career high 54 points - signed a $3.8M/year deal in CAR
Ryan Clowe, career high 52 points – signed a $3.5M/year deal in SJ.

Stajan has already outpointed Ruutu and Clowe and this season he will likely outpoint the totals put up by Antropov, Zajac and Franzen in their contract years.

Given the comparables, don't be surprised to see Stajan looking for a contract in the $3.5M+/year range this summer.

Who’s Driving the Bus?

If Kessel is generating the bulk of Stajan’s points (and all signs point to this being so: Stajan’s ppg nearly doubled since joining Kessel and he has countless assists from down near his own goal line) two questions immediately come to mind:

1. Can Stajan be replaced at a cheaper rate than the expected $3.5M+/year?
2. Should the Leafs commit salary and term to a player that isn’t generating the stats he's being rewarded for?

In terms of replacement value, it’s not just about keeping salary dollars for UFAs this summer. A potential Stajan deal is about cap dollars, cap space and flexibility for the life of the contract. $3.5 to $4M may not seem like a heavy cap hit to carry, but how many Leaf fans would love to see Finger ($3.5M) and Blake ($4M) moved?

As Eliotte Friedman noted in his most recent 30 Thoughts:

One GM told me that if you're going to sign a player to a long-term, big-money deal, he'd better be three things: critical to your success, consistently healthy and, most importantly, extremely self-motivated.

As much as I'm eating crow over the Kessel deal (I didn’t, and still don't, like the deal even though Kessel has looked fantastic for the Leafs) Kessel remains a rather soft player. Boston has effectively neutralized him in two games by playing smothering, tough hockey. I fully expect that this style would be SOP if the Leafs ever make the post-season.

In light of this, there are a few downsides to keeping Stajan as the Leafs #1 centre:

1. Stajan is not the guy you run 20+ minutes a night against tough competition. He’s not going to help shut-down the bigger pivots in the east;
2. On the other side of the puck, he’s not going to fight through smothering, tough, defence to generate points;
3. With Grabovski already signed as the #2 centre, can the Leafs succeed over the long-term, and in the post-season, with softer players centering the top two lines?
4. To Friedman's point, is Stajan the right type of player to build around or do the Leafs need to focus what assets they have – salary, term, the trading of spare parts and pending UFAs – to acquire a more physical or grittier player than can make some room for Kessel?

VORP

In terms of replacement value, there are always going to be bona fide NHL players looking for a short-term deal to stay in the game. Afinogenov signed for $800k, Moore for $1.1M. Peverley got picked off waivers. I think all 3 would put up Stajanesque numbers if given prime minutes with Kessel.

If there are other centres available who can produce alongside Kessel for less than $3.5M/year, trade Stajan for whatever you can get.

If no other viable options are available, or if you believe Stajan is a key part of the medium term success of the team, get Stajan’s name on a contract.

If I were GM

My tendency would be to let Kessel continue to inflate Stajan's stats for the rest of the season to see what the return for Stajan is at the trade deadline.

If the price is right, I'd move Stajan.

I'd also consider taking a page out of the St. Louis Blues playbook and move Stajan for picks at the deadline and look at re-signing him come July 1.

If Stajan is willing to take a home town discount (less than $3M/year or a very short term deal) I'd get his name on a contract.

The cap makes the NHL an efficiency contest. Elite teams lock-up their superstars and round out the rosters with players who are outperforming their contracts. Personally, I don't think Stajan fits either of these categories.

With 16 pending UFAs and RFAs on the Leafs extended roster and just 59 days between the January 1st opening of contract renegotiations (CBA 50.5 F iv) and the March 3trade deadline it's going to be an interesting few months for Burke and the Leafs.

Stajan may be the most intriguing challenge Burke has.

Ask me about the secret to comedy

Phil Kessel has looked impressive so far, but with the season nearing the quarter mark and the Leafs on pace for their worst point total since the mid-1980s one has to ask - was this the right time for Burke to pull the trigger?

Phil Kessel is undoubtedly an offensive threat with a wrist shot reminiscent of Wendel Clark's. Unlike Wendel, he's also impressed at the other end of the ice, demonstrating his speed with some aggressive and timely back-checking. He's head and shoulders better than any other Leaf forward and it's been a long time since the Leafs had a young talent like this.

That said, I still have a real problem with the timing of the Kessel deal.

This is the type of deal that’s traditionally pulled off by teams with deep farm systems who are close to winning it all.

The Leafs aren’t close to winning most games, never mind competing for the Cup. Their farm team is about as deep as a oil slicked puddle in an empty car park.

The price paid for Kessel was fair but, given the paucity of talent on this club and the complete lack of depth in their system, I'd argue that the Leafs were not in the position to pay that price.

Trading for Kessel when Matt Stajan is your first line centre is the equivalent of a starving homeless guy getting a sub-prime loan and buying a Ferrari.

There are many who claim the Leafs could afford to sacrifice two first round, a second and a third round pick to land Kessel because the team signed NCAA free agents Hanson and Bozak and plucked young goalie Jonas Gustavsson out of the Swedish Elite League.

I totally disagree.

Don’t get me wrong, the NCAA free agents and Gustavsson are great signings, but the Leafs need to do that each and every year for the next two or three seasons, PLUS draft well, just to replenish their prospect pool.

The Leafs have managed to keep their first round pick just three times this decade. Tlusty, Schenn and Kadri are all the Leafs have to show for first rounders since 2000. (Boyes went for Nolan; Cola and Steen for Stempniak; 2003 and '04 dealt for 15 regular and 13 playoff games of Brian Leetch; Rask for Raycroft; the '07 first rounder went for Toskala).

The Leafs won't get another first round pick into their system until 2012.

Given that it usually takes two to three years for a first round pick to make the NHL (never mind make a contribution at the NHL level), once Nazem Kadri makes the jump, it will likely be 2015 by the time the Leafs have their next first round pick in the line-up. Kessel's contract expires in 2014.

For those who argue that players of Kessel's calibre don't hit the open market and teams have to grab them when they do, there's a lot of truth to that; however, every trade deadline produces vets that can push a team over the hump. The Leafs grabbed Leetch, Pittsburgh grabbed Hossa, the Sharks grabbed Campbell, the Stars got Richards, and so on...

Admittedly, most of these players were rentals not multi-year contract holders like Kessel, but the larger point remains: I'd rather build a competitive team first and then look for the much-needed extra part on the trade market. If the Leafs drafted and developed properly, they'd also have a much richer asset base to trade from.

I think the prudent, and most probabalistic path to success in the NHL is to draft and develop well. Get as many kids into the system as possible.

Here’s why:

1. Risk pool – the more prospects the less need for them to all pan out. These are, after all, 18, 19 and 20 year old kids. It’s not an exact science so load up and spread the risk (after Gunnarsson, the Leafs cupboard on D is pretty much empty and that ain’t good).
2. The CBA constrains salaries on players in their first three years, which leads to…
3. Greater cap flexibility as young players outperform their contracts; and
4. Players with less than 3 seasons experience are waiver exempt, creating even more roster flexibility; which means...
5. Teams have the much needed, and rarely found, depth in their system. You develop these kids right and they’ll be able to step right in, play the system and make a meaningful contribution.

In hockey, like comedy, the secret is timing. And I'm not laughing.

Instant Karma: Kessel Makes his Leaf Debut

Every hockey trade needs a bit of distance to be properly evaluated.

I thought the Leafs had erred when they acquired Dimitri Yushkevich for a first round pick way back in 1995. The pick turned out to be a bust and Yushkevich became one of my all time favourite Leafs.

Tonight Phil Kessel is scheduled to make his Leaf debut. I don't know the last time a player arrived with such heavy expectations - Gilmour? Sundin? It's a debut imbibed with a lot of pressure and huge expectations for a guy who hasn't played a game in six months and is recovering from off-season shoulder surgery.

I have no idea how Kessel will play tonight but I fully expect another round of instant so-called analysis based solely on his performance in a single game on a weeknight in November.

Here's hoping we all remember to take a bit more of the long view.

Phil Kessel is a Leaf

The Leafs acquired Phil Kessel from the Boston Bruins for two first round picks, a second round pick and a reported five year $27.2 million deal that carries a $5.2M cap hit.

Kessel is coming off shoulder surgery and will be out until November, possibly December.

By the numbers, Kessel has put up:

70GP 11-18-29pts
82GP 19-18-37
70GP 36-24-60

That's a very nice progression with all signs pointing in the right direction.

That breakthrough year came while playing with gifted centre Marc Savard. It should be noted that Kessel's goals for 60 (GF/60) drops by about 40% when he’s not on the ice with Savard, from 1.246 down to 0.782 and the Leafs don't have any forwards with those type of set-up skills.

A few other things to keep in mind. Kessel plays soft. Monsieur Duvet soft. He had six hits in the entire 2008-09 season (that's not a typo). That works out to about one hit every 12 games.

He doesn't play the PK either.

Sure none of this will matter if he's scoring 30+ goals. But if that surgery didn't go well or if he's lost his soft hands, he doesn't bring much else to the rink. And that's a worry when the Leafs have committed over 10% of their cap to Kessel for the next five years, more if the cap shrinks as it's expected to do.

This is a difficult deal to evaluate, it seems to be contingent on more ifs and hypotheticals than the American's case for war in Iraq.

• Can Kessel come back from off-season surgery?
• Can Kessel continue to grow as a player or was his 36 goal year an aberration?
• Will the Leafs finish outside of the top 10, or could their first rounder be in lottery contention?

Ok, maybe just three big questions.

I'm not crazy about this deal and it's mostly because of timing. The Leafs have kept just three first round picks since 2000 (Tlusty, Schenn, Kadri) and the organization isn't exactly loaded with prospects.

Yes, Burke has done a nice job adding Hanson, Bozak and Stalberg to the club, but those players will be UFAs in two years whereas draft picks are RFAs after three or four.

The Leafs may have just gotten more competitive, but depth and salary control are the keys to building an elite club. Two things the Leafs gave up to land Kessel.