Trades from the Policy Sciences Perspective

Normally, I would never discuss a topic related to what I study in school on this blog. After all, there are very few situations in which, for example, the intricacies of water law would apply to baseball. However, while I was thinking about the Santana situation earlier today, I started thinking about it in terms of the policy sciences, and thought that I would briefly share some of the dynamics that go on in trade talks from the perspective of someone studying the policy sciences.

This is not meant to be a full-fledged policy sciences review of the "problem" of what to do with Johan Santana -- I don't have nearly enough inside information on the teams, what they value, and how they rate particular players to do that kind of work. Instead, I'm just going to point out some of the interesting features of baseball trades about which the policy sciences could provide some insight. Just an FYI -- you can go to Wikipedia for articles on many of these concepts (not to mention googling for information on pretty much all of them). I admit to using Wikipedia as short-hand reference to remind me of certain aspects of some of the concepts mentioned in this post, so consider this attribution.

What exactly are the "Policy Sciences?"
Very, very briefly, the policy sciences were designed as a way of approaching public policy problems by looking in-depth at a particular problem, and considering as many aspects of the problem as possible in context. The policy sciences are also generally more concerned with the goal being sought to be achieved than the standard social sciences. There's a whole lot more that I could say on this topic, but this is meant to be a bit more interesting (and relevant) of a post than that, so I'm going to move on to discuss some of the things that the policy sciences would suggest about making trades.

Human Nature and Human Behavior
There are a number of very interesting psychological traits that impact how GM's handle trade scenarios. Here are a few of those which I believe apply -- and there are undoubtedly many, many more:

Loss Aversion/Endowment Effect
Perhaps the most pervasive aspect of human nature that applies to making trades is the concept of loss aversion. Essentially, loss aversion suggests that a person who loses something will suffer to a greater degree than a person who gains something will benefit. For example, losing $100 will feel worse than finding $100 will feel good. Numerous studies have been done to test the concept, and it generally holds. Looking at trades, this means that a team is more likely to overvalue a player already on the roster -- which explains why most teams ask for more than a player is worth when talking trades. This makes some intuitive sense -- if you've drafted and developed a prospect, you probably want to see that prospect succeed, and trading him away will take that away from you. This effect has become increasingly pronounced as teams have come to recognize the value of prospects in the game.

Focusing Effect
The focusing effect occurs when people place too much emphasis on a particular aspect of a problem. If a student receives a D in a class after receiving a C, three D's, and an F, and then blames the grade on the F he received, he is exhibiting the focusing effect. This could easily happen when evaluating a particular trade, in a number of different ways. As one example, if the Twins fail to work out a trade with the Yankees because they can't agree on the identity of a third prospect to be included in the deal, this would probably be an example of the focusing effect. Clearly, Phil Hughes would be the centerpiece of the deal, and Melky Cabrera would be the second most important piece. The difference in value between, let's say, Ian Kennedy (who the Yankees don't want to give up) and a player who the Yankees ARE willing to give up, is probably quite small compared to the benefit of receiving Hughes and Cabrera in the deal. Focusing all of the attention on the third player in the deal, thereby risking scuttling the whole thing, places too much emphasis on the wrong part of the deal.

Outcome Bias
This one doesn't really have to do with the actual trade process, but it certainly applies to what will come later. Outcome bias occurs when a decision is evaluated on the basis of the eventual outcome of the decision rather than the soundness of the decision at the time it was originally made. This is fundamentally wrong, because any decision includes the possibility of risk. Information is not perfect, after all, in almost any circumstance. If the Twins swing a deal that nets them Phil Hughes, Melky Cabrera, Ian Kennedy, and Jose Tabata (yes, I know that's not going to happen -- this is an example), and Hughes and Kennedy both blow out their arms, Cabrera is mediocre in center, and Tabata never makes the big leagues, the tendency would be to evaluate the trade as poor. In fact, however, based on all available information at the time of the trade, this would be a steal for the Twins. Fans (and owners!) should keep this in mind when evaluating performance.

The Problem of Complexity
One of the big issues in the policy sciences is the balancing act that decision-makers must engage in when trying to understand issues. Most major policy issues are too complex for an all-inclusive analysis of the issue to be feasible (think of something like climate change -- there are too many known factors in global climate to be considered at the same time, let alone the vast likelihood that there are additional unknown factors involved), but at the same time an oversimplification of the problem could very well lead to poor decision-making. Most of the time, this is resolved in favor of simplicity -- and the results are predictable. Look at the ineffectiveness of global climate models, or of models seeking to predict the results of elections, or of models focusing on the stock market, all of which have generally produced abysmal results.

This should be taken into consideration when considering the Twins decision regarding Johan Santana. The problem is obviously not as complex as trying to predict global climate or the performance of a stock over time, but it also isn't simple. Twins GM Bill Smith has to consider his payroll, his active roster, his minor league roster, the likely performance of any players he's going to get back in a trade (and player performance models over time also aren't particularly effective), the reaction of a fan-base, how the Yankees and Red Sox will react to proposals, and so on. The point is that anyone suggesting that a trade is easy is vastly over-simplifying the problem -- as the Star Tribune has done a good job pointing out over the last few days.

The Problem of Context
This is another issue that's been mentioned in numerous places before, but bears repeating. Very simply, context just means that you have to look at the particular issues that are associated with a given problem to correctly analyze it. There are a number of contextual issues associated with a Santana trade: Santana has just one year left on his contract; he's likely to leave after the 2008 season via free agency; his value is probably higher now than it would be at the trade deadline; Santana has a no-trade clause which he might not waive during the season; the Twins have gaping holes in CF and at 3B; the primary suitors for a trade are the Yankees and Red Sox. There are undoubtedly many, many more contextual issues, but certainly you get the idea -- these are the types of issues that make up the fodder of most articles discussing a possible trade, they just usually aren't identified as "contextual" issues.

Conclusion
There are many, many more that I could go into (especially on the human nature topic), but this post is long enough. Hopefully if you've read this far, you found the post at least mildly entertaining.