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Theo Epstein, Bud Selig, And Game Theory

What do economics podcasts have in common with improving the farm system? It's all a game.


I have a string of podcasts I listen to through the week. Curiously, none are Cubs-centric. One of the regulars ("Stuff You Should Know") was recommended by someone on BCB. One I was enjoying the other night was from "Freakonomics (The Hidden Side Of Everything)" on author Jane Austen as being the matriarch of Game Theory. Which sounds like it has nothing to do with a baseball blog post. In theory, though, an almost-throwaway line from the airing could hold a key to the Cubs future.

Before I get there, a bit on Jane Austen and game theory. Many of Austen's books (including "Emma", which served as the basis of the movie and TV show "Clueless") had lead characters that were a bit scheming. That said, in the 19th Century, women tended to have fewer rights/opportunities than now. (Not a political statement, just a bit of explanation.) If you are outside the leadership hierarchy, you often have to get your social standing from off-beat methods. By discussing topics along those lines in her novels, Austen was discussing game theory a hundred years before game theory was game theory.

Which reminds me, game theory is where a specific number of competitors try to use methods at their disposal to gain advantages in a confrontation. Or something like that. Chess is a good example. There are a limited number of options on a chessboard. Knowledge of which possible moves are more likely to lead to a victory makes for a better player. Poker is awash in game theory, as well. While your cards are important, if you can represent your lousy hand as a good hand, you might be able to get a better hand to fold.

This is a baseball blog, and baseball has plenty of game theory. Which pitch will be more likely to get the next hitter out? It has to appear to be a good pitch, lest the batter not swing. But if it is too near the plate, BCB's ballhawk might make a running grab on Waveland Avenue. Curve ball, or fastball? Maybe a change? What is the pitcher likely to throw? Should the hitter take the first pitch? Game theory.

One thing the Cubs have done better recently is emphasize defensive shifts. The Dale Sveum line seems to be, 'if the ball is 90 percent likely to go to one side of the field, we'll overload that side.' Again, game theory. The argument could be made that grabbing middling talent off the waiver-wire, just to try to sneak it through said waiver wire in a few days (to send it to Iowa) is game theory.

So what does this have to do with Bud Selig? In closing the podcast, Stephen Dubner (Economist, University of Chicago) noted there are two times when game theory comes into play most. One instance would be when there are a nearly-infinite number of prior data points. (Chess, poker, and pitch/positioning data). The other is when there is only one chance to play the game.



This year, as has been noted a number of times, the collective bargaining agreement has changed the terrain on international free agent spending. From international pool slots, to draft spending wedges, and penalties for overspending, the 30 front offices all knew the rules. They plotted. They schemed. They negotiated. And on July 2, they played game theory for baseball junkies.

All teams, likely, had a game plan. Some were, likely, more elaborate than others in their strategy. Team Theo had Steve Clevenger holed up in a hotel room in Iowa to keep him trade-ready. Signings trickled in. Wedge-trades trickled in. And, somewhere along the line, Epstein realized he may have mis-calculated. Teams valued their wedges more than expected. Whether the other GMs planned to swoop in later on late-arriving talent, or another reason, added money was getting tough to procure. The strategy, while sound in theory, had a flaw.

instead of continuing with a possible losing strategy, like a chess veteran stunned by losing his queen early, Epstein realized a new way to do things. It was a change that could eventually kick-start the Cubs system. Selig's plan instituted heavy fines for exceeding spending limits. As Epstein and crew noted, the prices on international free agents were tamped down by the limits and wedges. It appears, instead of worrying about overage fees and $250,000 maximum limits next year, Epstein wants to buy all the talent he can this year.

The Eloy Jimenez signing is on hold, much like the Tyler Alamo and Trevor Clifton contracts had been before the draft deadline. And much like some free agent deals were in the off-season, awaiting 40 man roster space. Taiwanese pitcher Jen-Ho Tseng signed recently. This will put the Cubs in dire straits regarding the overage penalties. Epstein's game theory response seems to be, "Who's next?"

Other teams seem unwilling to pay the fines. They are concerned about their draft wedges, and how much is in their allotted pools. Epstein's concern seems to be when the fourth- and fifth-ranked prospects turn 16. Dominican prospects Luis Encarnacion (3B) and Leonardo Molina (CF) turn 16 soon. Then, they will be eligible to sign. They are the next two 'uncommitted' on Baseball America's unsigned list. Since few teams wanted to trade draft slot money to the Cubs, Epstein figures the other 28 eligible teams (the Rays are facing sanctions similar what to the Cubs are staring at next year) want to buy Molina and Encarnacion on discount. Epstein would rather pay a fine than lose a potential solid prospect. It could be that (you may want to sit down for this) the team that was uninterested in Leonys Martin in May of 2011 due to his $15.5 million price tag could soon have signed four of the top five rated prospects internationally, grab the 16th and 23rd as well, and look for bargains beyond that.

That's the Soriano contract-savings at work.

It is reported that Jimenez will sign in early August, after turning down over twice the money from another team. Could it be the Cubs are getting hometown discounts just under 2,000 miles from Wrigley? Two reasons I see exist for the delay. With the trade deadline, flipping a player for a draft wedge is still possible, though apparently remote. More importantly, though, Encarnacion turns 16 on August 9. Molina turns 16 on August 1. Which is, perhaps not-so-co-incidentally, when his countryman Jimenez plans to sign with the team.

Sam Zell never did things like this.

Their penalty will be this: Cubs scouts, in a pitching-heavy year in 2014, will be able to only offer $250,000 bonuses in the 2014-15 time period. If the prospect demands more, keep walking until you find another solid-yet-rough looking prospect. The wedges, however, will be in play. Whether they net prospects or veterans will be unclear until next July, when Epstein plays game theory again.

Without question, many of these potential gems will get lost between signing a bonus and starring in Wrigley. Either way, it's doubtful the front office will be "Clueless" next time around either.