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Monday, May 26, 2003

Posted by Jake
The Buffett of Baseball

This article is about Billy Beane, the general manager of the Oakland A's. He is using the mathematical strategies of economics to make a better basebell team than the Yankees at a fraction of the cost.

Basically the A's are using the same mathematical logic that investors do to optimise their portfolios. They analyzes the expectations of things they can measure (focusing on things that are most relevant to winning). Then they try and maximize this things (such as home runs or few walks) in each individual player. This allows them to find useful traits in players that other teams might abandon as defective (due to an injury or otherwise).

This is not altogether different from the idea that that Stanford Economics professor won the Nobel prize for. There is an efficient front for investments where the risk/return ratio is the lowest. Investments tend to move towards this efficient front because they can't attract capital if they don't.

And it is working. Big time. The A's have a payroll of about 40 million, yet they are beating teams like the Yankees with 125 million. It is not that they win every game. But over time they have set up a system where there is statistical certainty that they will do well.

I don't even like baseball and this is fascinating.


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