The roles of skill and luck in sports and business

The 2015 baseball season is demonstrating that when it comes to untangling the roles skill and luck play in sports and business, luck may play a greater role than we’d like to think.

With technology and best practices so widely and easily articulated and disseminated, the difference between the best competitors and the worst is less than in the past.  So a hot stretch of cluster luck can make the difference.

Case in point:  so many teams currently hover close to .500, in contention for the 10 playoff births, that the trade market has been slow to develop.  Teams can think in terms of limping into the playoffs and then getting hot, and so take longer to choose whether they’re buying or selling assets.

The pre-season projected standings predicted such parity, with only 23 projected wins separating the leaders from the laggards entering this season and only 2 teams projected to finish with 90+ wins.  Welcome to MLB’s 2015 Projected Standings, Where Everyone (and No One) Is a Winner:

Projection systems tend to forecast more conservative winning percentages than we’re used to seeing in the final standings. That’s because projected win totals reflect the most common outcomes of thousands or even millions of simulations, whereas a single season, with its wild fluctuations in luck, offers ample opportunity for teams to significantly exceed or fall far short of their true talent levels…  As Phil Birnbaum and Neil Paine have noted, there’s an absolute limit to the accuracy of baseball projections. Even if we were omniscient when it came to team talent levels, we wouldn’t be able to predict luck. And luck has large effects: As Birnbaum wrote, “On average, nine teams per season will be lucky by six wins or more.”

It’s not only harder to separate yourself from the pack, there’s also less incentive to do so:

Last August, Birnbaum wrote that in a rational market, an expanded playoff field should make bad teams more willing than before to spend on free agents, and good teams more willing to tighten their belts. “With more teams qualifying for the post-season, there’s less point making yourself into a 98-win team when a 93-win team will probably be good enough,” Birnbaum wrote. “And, even an average team has a shot at a wild card, if they get lucky, so why not spend a few bucks to raise your talent from 79 games to (say) 83 games, like maybe the Blue Jays did last year?” That’s exactly what we’ve seen. … (However) as soon as it sinks in that not all “postseason” spots have equal value, teams might start prioritizing division titles over coin-flip wild-card games and aiming, once again, for greatness instead of good-enough-ness.

Somewhat ironically, the team suffering the most from bad luck so far this season is the very same team who invented “Moneyball.”

Billy Beane actually built a competitive team, but one that’s had an absolutely brutal run of luck. By BaseRuns, the A’s have played .596 baseball, good for a 51-34 record that would make them the second-best team in baseball. In reality, though, the A’s are a wildly frustrating 38-47 (.447), leaving them a whopping 13 games behind their expected record. No other team in baseball is more than five games below its BaseRuns-expected record. Oakland is 6-21 in one-run games; that .222 winning percentage would be the worst figure over a full season in 80 years.

The A’s will have more luck in one-run games. And they’ll play more like the .596 team than the .447 team over the rest of the season. If anybody in baseball has faith in trusting that longer view of performance, it’s Beane. The problem, of course, is that they may be buried too far in the standings to catch up.