Adam Saad has chosen to join Carlton and attention has turned to what a “fair” trade with Essendon should look like. Many are pre-emptively deriding Essendon List Manager Adrian Dodoro for putting too high an asking price on Saad’s head. In Dodoro’s own words:
“Although we wish Adam all the best, he is not a free agent and therefore a suitable trade will need to be forthcoming from Carlton. Clearly, there is an expectation of compelling compensation for a player of Adam’s calibre.”
Dodoro has become a trade week villain for many. He has a long track record of hard-fought last-minute deals. His negotiation style is direct and unambiguous.
It is almost three years to the day since an out of contract Saad left the Suns to join Essendon. The Suns received Essendon’s future second round pick in return. No one expects Dodoro to accept similar compensation from Carlton.
If that turns out to be the case, the question becomes why has Saad’s trade value risen so significantly in Dodoro’s eyes over the last three years? I do not believe he is a materially better player now than what he was at the Suns. He is also three years older. The answer may lie in a cognitive bias known as the Endowment Effect.
People value items that they own more than those they do not. The mere fact of ownership increases the perceived value of any item. Nobel Prize winning psychologist Daniel Kahneman and his colleague Amos Tversky found that a primary cause for this bias was “loss aversion”. They postulated that people dislike losing things more than they enjoy gaining them. When faced with a choice, people focus more on their potential losses far more than their potential gains. As a result, we tend to protect the status quo rather than change, even when a change is objectively better.
An alternate theory was more recently published concluding that the cause of the endowment effect was not loss aversion but instead a “reluctance to trade on terms that appear unfavourable with respect to salient reference prices”. Put simply, people do not want to sell something for less or buy something for more than their own perceived value of it. They do not want to sell something for less or buy something for more than the market price.
An endowment effect arises when valuations and market prices differ. We are likely to see this phenomenon demonstrated with the Essendon and Carlton negotiation over Saad.
Dodoro paid a future second round pick when Saad was out of contract at the Suns. Now that Saad is on Essendon’s team, his asking price reportedly far exceeds this. The point here isn’t what the trade will end up being, or what is “fair”, but rather the psychology of why Essendon were willing to pay one price for Saad when he wasn’t their player, yet are seeking to sell him for a far greater price now that he is their player.
Of course, there are other factors at play here including the possibility that Carlton could conceivably obtain Saad without agreeing to a trade should they wish to try their luck at the preseason draft. Essendon will not want to lose Saad for nothing as Gold Coast did with Jack Martin last year.
It is very unusual to see an uncontracted player move twice within such a short time frame, particularly in their prime. The only other recent examples may be Brad Hill and Jared Polec. In both instances though, their values were significantly greater by the time they moved clubs the second time. Saad on the other hand is virtually the identical player he was when he arrived at the Bombers. As we watch Essendon potentially dig in their heels this trade period, we can point to some principles of behavioural economics as a possible reason for why. Or, it may just be “Dodoro being Dodoro”.