Opportunity Cost - Evaluating Your Transactions

Opportunity cost, one of the most important topics in economics, hasn't gotten enough press time yet, and I'd like to take a few minutes to discuss its relevance when deciding who to drop, trade, and hold as the season marches on. Opportunity cost is defined as "the best alternative given up when making a decision." Economists also say that opportunity cost is the decision-making cost - if the alternatives are better than what you currently have, you will choose them, regardless of how much you have invested in the past (remember that past investments are sunk costs; economists say that these do not matter). As we reach mid-May, people are beginning to ask questions such as "Should I drop Andy Pettitte?", "What should I do about Chipper Jones?", or "Is it worth it to wait on Nick Swisher?". I'm going to take a minute to address the opportunity costs in a couple of these situations.

The opportunity cost of holding a player such as Andy Pettitte will depend on your league. If you can drop him and get a player such as Andy Sonnanstine, well, the opportunity cost isn't very high (Sonnanstine has a lower WHIP and more wins, but a higher ERA and fewer K's). If the guy you're going to pick up isn't any better, why would you drop?

The opportunity cost of trading a player such as Jones is, obviously, keeping him (remember, opportunity cost is the best alternative to a decision). If you keep him, you're bearing an injury risk and a probable decline in performance because, let's be honest, he's not going to hit .400 at season's end. But he could still hit above .300 for the rest of the year. If you don't think you can get a guy who will hit .300 in exchange for Jones, you probably shouldn't trade him.

The opportunity cost of dropping a player such as Nick Swisher is the same as the opportunity cost of trading him. If you drop Swisher, your opportunity cost is a player eligible at 1B and in the outfield who always has a high OBP but hasn't shown power yet. If you could have dropped him to pick up Joey Votto, you wouldn't lose the position eligibility but you'd gain the stats. However, if you drop him to pick up Mike Jacobs, your opportunity cost is the lineup flexibility you'd gain by holding Swisher.

So remember, keep in mind your alternatives. If you're ever trying to rationalize dropping Pettitte for Sonnanstine, take a step back and look at what you can expect from them in the future (remember, picking up Sonnanstine doesn't give you credit for the complete game he already threw).