Risk doesn’t really matter

Risk is one of the most overused words in fantasy baseball advice. Sometimes we’re told to seek out players with more risk so that we can harness their upsides. Other times, we’re told to play it safe and stay away from risk, particularly in the early rounds of draft (or for the high dollar players in auctions). There are indeed several minor strategies where it is best to minimize or maximize your risk exposure but only if risk-adjusting is low cost. But the truth is, properly understood, risk matters comparatively little.

Unfortunately, risk is often misunderstood. A player’s upsides and his downsides should all figure into his forecast performance. A mediocre player with a small chance of an all-star, breakout season will have (or should have) higher expectations than an identical mediocre player with no chance to breakout. This difference in forecast, average performance is important and valuable. That is, these players should have different dollar values.

But if a player has a higher upside but the same forecasts as another player, then the first player must also have a higher downside (to balance things out, note that, by “forecasts,” I mean their expected average results—the number you’d get if you looked at, say, their Oliver projections). So when an expert says that one player is more valuable than another because he has a higher upside, he must mean that this player is more valuable because he’s riskier. Otherwise it’d hardly be news that a particular player is more valuable simply because he has higher projected stats.

I would much rather have a player that is correctly valued using only three sets numbers: his forecasts given health (e.g. how well the pitcher pitches when he does actually pitch), how much time he’s expected to miss, and the forecasts for the replacement level player at his position. Forget about upside or downside.

Experts who do care about risk usually do so for one of three reasons:

—They are misunderstanding risk and they haven’t adjusted their forecasts for both upside and downside. For instance, forecast home runs should be adjusted for injury concerns. Once done, there is much less reason to double emphasize the injury concerns (or the upside).

—They are double emphasizing the risk of injury, for example, because of strategic concerns. Here’s where you need to be extra careful, since these strategies can only apply in narrow cases. There are only a few if any roster spots that are truly available to players with high upsides (a topic of mine in a past article). That is, there’s a cost to holding on to high upside players, waiting for them to break out—you have to forgo the opportunity to hold on to steadier reserves, a Jason Kubel type rather than a Michael Brantley.

—They are risk averse or risk seeking, excessively so. The risk from any one player contributes very little to the overall risk of your lineup. While it is true that the cost of risk for a first-round player is higher than for a fifth-round player, the difference in cost is or should be small.

Likewise, while you’ll need to make profits on your players in order to win your league, it really isn’t more effective to try to find large dollops of profit from a few players than it is to get small contributions from most of your players. You don’t need to start buying lottery tickets.

Making the case for ignoring risk is tough because the experts’ arguments are literally true without being practically useful. By all means, once you’ve got good, injury-adjusted forecasts, go ahead and contemplate risk-based strategies. But there is a risk worth considering first: the risk that you’ll overemphasize risk concerns on your draft day as much as the experts overemphasize them before.


Print This Post
Sort by:   newest | oldest | most voted
AJK
Guest
AJK

Excellent article.  Completely logicaly and yet completely overlooked by most experts.

JoeC
Guest
JoeC

But most forecasters don’t base their projections on someone getting injured (unless it’s someone who is ALWAYS injured… like, say, Nick Johnson). Most forecasters forecast players to get a full season’s at-bats. “This is what this player could do if they played a full season” is what they’re saying.

THEN the forecasters add on some type of injury risk grade for each player. So no double-counting on the risk factor.

Drew
Guest
Drew
This article was a good read, but its argument is more applicable to the early rounds of drafts. As the rounds go by, I still think I’d be more likely to take on additional risk. Considering the projections below and assuming all other stats are equal, who would you rather have? Player A – 15 HR (upside of 17 HR, downside of 13 HR) Player B – 15 HR (upside of 25 HR, downside of 5 HR) I’d rather have Player B even though both players have the same forecasted stats. There will be players on the waiver wire –… Read more »
Steve
Guest
Steve
The logic in this article holds in an environment where transactions are not allowed.  In a league with a waiver wire the downside risk is mitigated. For example, Eric Bedard might be projected for 100 innings, but drafting Eric Bedard nets you, on average, 100 innings + 100 innings of replacement level pitching – DL spot. Another example: Gordon Beckham’s range of projections ranges from All-Star to AAA.  If he is performing at AAA level, you can dump him for a replacement level player.  So his 10th, 20th, 30th percentile forecasts would actually be capped by replacement level for most… Read more »
Mark
Guest
Mark
Gotta agree with Drew and Steve.  From a pure evaluation standpoint, this article is spot on, but there are loads of game theory quirks that apply to fantasy baseball, many of which involve not just evaluation of players and profit but of the tactical value of risk.  Part of this is the utility of a concept like “replacement level”.  In evaluative terms, this concept is incredibly useful.  In practical terms, when you are actually deciding to replace a particular player with another one, the replacement level concept you used on draft day is almost meaningless.  You have to invent a… Read more »
Jonathan Halket
Guest
Jonathan Halket
Hi guys, Thanks for the comments.  I agree with all of them, in theory. But, Steve, I think managing risk is actually much harder than you let on. -1) players that are high risk because of high upside generally have a small sample problem.  They isn’t a long track record of them actually performing at this level.  So, if and when they actually start displaying some of this upside, and you contemplate starting them and dropping another player, you could just as equally become the victim of mean reversion. Consider Bautista – when exactly in the season did he go… Read more »
Jake
Guest
Jake

Mark nailed it.  Great, great comment.

I was prepared to post something along the same lines, but he said it better than I could.

wpDiscuz