Carry-Over Lottery Allocation: Practical Incentive-Compatible Drafts
This addresses the incentive problem in sports drafts like the NBA, where teams may tank games, and is incremental as it builds on existing lottery mechanisms.
The paper tackles the problem of NBA teams deliberately losing to improve draft odds by proposing the Carry-Over Lottery Allocation (COLA) framework, which removes incentives to lose by giving every non-playoff team the same number of lottery tickets and using multi-year playoff outcomes to evaluate team quality.
The NBA draft can incentivize teams to deliberately lose. We propose a draft mechanism that is practical, incentive-compatible, and favors weaker teams. The Carry-Over Lottery Allocation (COLA) framework represents a paradigm shift in evaluating team quality, replacing single season standings with multi-year playoff outcomes. In our proposed mechanism, every non-playoff team receives the same number of lottery tickets, removing incentives to lose. Lottery tickets carry over to future lotteries, but playoff success or winning a top pick diminishes a team's accumulated tickets. The lottery is familiar and preserves fan engagement. Implementation challenges are addressed to demonstrate feasibility, including transitioning to COLA, handling trades, and accommodating draft classes of varying strength. For exceptionally strong classes, teams may prefer the lottery to the playoffs. We provide a solution, employing a truth-elicitation mechanism to identify such years and expanding lottery eligibility to include as many playoff teams as necessary to preserve incentive compatibility.