Asymmetric Information in the NFL Draft
Millions of fans watch, hoping their favorite team will pick a future star. Yet, beneath the surface lies a complex decision-making process involving insights from behavioral economics.
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The National Football League (NFL) hosts its amateur player draft every spring, a key event that began modestly in 1936 when Bert Bell, co-owner of the Philadelphia Eagles, sought a way to improve competitive balance across the league. Bell argued that a player draft was necessary to give underperforming teams a better chance at recruiting top college talent. Owners believed this would improve on-field competition and increase the overall enjoyment (i.e. profitability) of the league. The change improved owner profitability by reducing scouting costs for incoming players and suppressing player wages by eliminating direct competition.
While the NFL draft doesn’t improve competitive balance, it has evolved from its humble origins into a high-stakes media spectacle where fans can watch their teams select new talent from college football ranks. Millions of fans watch eagerly, hoping their favorite team will pick a future star. Yet, beneath the surface of this spectacle lies a complex decision-making process involving insights from behavioral economics.

While many sports fans are familiar with the concept of tanking—where teams may intentionally underperform to secure a better position in the draft—the behavioral economic concepts within the NFL draft are much more extensive. Tanking represents one of the most blatant unintended consequences of a reverse-order draft, but it’s fairly straightforward. It’s common to see fans support tanking if it means securing top-tier talent for next season.
The subtler, more pervasive economic challenge lies in a concept we now know as asymmetric information. It happens when one person in a transaction has more (or better) information than the other person. The problem has been around forever, but the concept was popularized in the 1970s by George Akerlof, who was trying to understand the market for used cars. Akerlof was a pioneer in this area of economics and would eventually go on to earn the Nobel Prize in 2001 for his “analyses of markets with asymmetric information.”
Asymmetric information can disrupt markets by significantly influencing decisions and outcomes. In the context of the NFL Draft, asymmetric information comes up in a variety of different ways. At the broadest level, players and their agents often know more about the players’ abilities, health, and character than the teams selecting them.
Teams aren’t destined to just accept that imbalance. Instead, they invest a lot of time trying to identify a player’s true value. They may even invest resources to downplay their interest so that the teams in front of them don’t steal their pick. The entire system can result in suboptimal draft choices, where teams may end up with players who aren’t as promising or players end up on teams that don’t suit their professional goals.
Addressing Information Gaps
NFL teams are well aware of the information gaps and use various strategies to bridge them. The NFL Scouting Combine, a week-long showcase occurring every February, is one critical method. At the combine, prospective draft picks undergo a series of physical and mental tests in front of NFL coaches, general managers, and scouts. It’s a low-cost method of getting 300 athletes in one location for all teams to evaluate at once rather than each team flying the athletes out to their facilities.
Athletes go through a series of public tests, which include the 40-yard dash, bench press, and vertical jump. But they are also evaluated by each team privately through physical exams and interviews, which are designed to measure a player’s physical capabilities, psychological readiness, and ability to perform under pressure.
These evaluations are more than just tests of physical abilities; they are a tool for signaling. In economic terms, signaling is an action taken by the informed party to reveal private information to the uninformed party. A strong performance at the combine can signal a player’s fitness and readiness, potentially boosting his draft stock. Combine interviews are another vital component of the draft process that allows teams to assess a player’s character and intelligence. These interviews help teams gauge a player’s maturity, thought processes, and how they might fit within a team’s culture and playbook.
Tackling Moral Hazard
Deep scouting, medical evaluations, and interviews only go so far. Teams also rely on past game footage and third-party evaluations from trusted college coaches and scouts. Many university programs host a “Pro Day” for prospects to measure, work out, and interview with NFL coaches and evaluators in a more familiar environment. But what happens when teams still aren’t sure about a player’s ability to compete at the highest level? This is less of a concern for players taken in the first round, but that concern grows quickly for players taken later in the draft.
Once drafted and signed, players may be tempted to reduce their effort since they’ve secured a contract. Teams counteract this by structuring contracts with performance incentives and including behavior clauses that must be met for the player to receive all benefits. These measures align the player’s actions with the team’s goals, ensuring continued effort and discipline. If the players don’t work out in the first few years, they’re unlikely to be resigned by the team.
Final Thoughts
NFL teams need to mitigate asymmetric information to make informed decisions. They address these challenges with rigorous testing, interviews, and strategic contract crafting, all in the hopes of finding players who will thrive on and off the field. But does it even work? For the most part…no. Fewer than half of the players drafted in the first round since 2011 signed a second contract with the team that drafted them.
The NFL Draft is not just a test of who can find the athletes with the most ability; it is a complex battle where information is the most valuable commodity. It likely explains why some economists favor trading early picks to get additional late-round picks. Increasing the total number of picks a team has in the draft might increase the chance of getting a draft pick who ends up with a successful career.
While teams may not be that successful in selecting the best talent, the event itself provides insight into how behavioral economics plays out in our everyday lives and America’s most beloved sport. Whether we’re buying a used car hoping to avoid a lemon or interviewing job applicants for our next co-worker, behavioral economics is relevant in every aspect of our lives.
But when it comes to the NFL draft this week, some of your friends might argue teams should do whatever it takes to move up in the draft to get the best player they can. Others might say the teams should stay exactly where they are and focus on the best available when their turn comes up. Perhaps you’re one of the people who thinks the team should give up their spot to move back and get more options later in the draft. It’ll likely take years to find out if the decisions made this weekend have any impact on performance, so we might as well just enjoy it for the spectacle it’s become. Let us know what you think your favorite NFL team should do this week!
Over the 3 days, 32 NFL teams will select a total of 224 players across 7 rounds of the draft [NFL]
More than 54 million fans tuned in for the 2023 draft over three days [NFL]
The University of Notre Dame has had the most players drafted into the NFL [Sports Illustrated]
Players drafted in the first round of the NFL draft get their names printed on the correct team jersey in under 2 minutes [WDIV Detroit]
In 1982, the Tampa Bay Buccaneers selected the wrong player, literally [The Sporting News]
The first player ever drafted in the NFL, Jay Berwanger, never played professionally because of the low pay and opted instead to become a rubber salesman [The History Channel]
Behold! The idea of trading down for later picks is interesting, but only if the odds of re-signing remain the same in the depths of the draft. If the odds remain at 44% in future rounds, then getting 2.27 later-round picks (even over multiple years) for a first round pick makes sense. But if the odds of re-signing drop (which they likely do) it requires more, perhaps 3 or 4 or perhaps even 5 additional picks to compensate