Joel Peralta: a trade without information imbalance

Why do trades happen? And more specifically, why did the Joel Peralta trade happen?

#Rays trade RHP Peralta, LHP Liberatore to LAD for RHP Jose Dominguez (40-man) and Class A RHP Greg Harris. Will add Dominguez to 40-man

— RMooneyTBO (@RMooneyTBO) November 21, 2014

Sales are simple -- I have $2.50, and I need to get to work, so I buy a metro card (which is generally agreed to be valued at $2.50) and the MTA takes me to work -- but a barter system is more complex. There are several factors that can drive trades. Let's look at them.

1. Differences in needs

This is basically the same transaction scenario as the simple sale. Both parties evaluate the goods in question in the exact same way, but each party needs what the other has more than it needs what it already has.

For example, say I've left my wallet at home, but somehow I got to work anyway. I need a swipe from a metrocard to get home. I can't buy it, since I have no money, but I do have a bag of nice coffee. I can make my coworker a cup of coffee (which he would normally buy for $2.50 at the coffee shop next door), and then he'll give me a swipe. Equal value is exchanged of two different types of goods.

Relating this to the Peralta trade, it's pretty clear that this is not what happened. The Rays traded a right-handed relief pitcher from their 40-man roster and a minor league pitcher who should have been added to the 40-man, for another right-handed relief pitcher and a young pitching prospect who is young enough to be left off the roster.

The same type of goods passed in either direction, but that's all.

2. Differences in timing

This is a common type of transaction in personal finance, so I'm going to abandon the metro card analogy. When you put money into a CD (Certificate of Deposit), what you're saying is that you have some money that you don't need right now. You're putting it somewhere safe (that will keep place with inflation, more or less) so that you can have that money in two years when you do need it.

There's an argument that this is what the Peralta trade is about. If both the Rays and the Dodgers thought that Peralta and Liberatore were good pitchers who could help a team now, but it was more important for the Dodgers to win this year than it was for the Rays, then they could swap two pitchers who are good now, for two pitchers who might be good later. The Rays would have made an investment that will mature in a few years down the road when they think they'll be competitive again.

This reading of the trade makes some sense based on player ages alone: Peralta will be 39, Liberatore will be 28, Dominguez 24, and Harris only 20.

3. Differences in valuation

The third driver for trades is the most interesting one, and it's particularly interesting in this case. To get back to my coworker with expensive tastes and a full metro card, let's say that I keep my coffee in a tin on my desk that says "Jamaican Blue Mountain" on it. That's the most expensive coffee in the world, and my friend knows that. He thinks that a cup of my coffee is worth $5 and will gladly swipe me into the train station in exchange for a drink.

Really, though, it's just some Folgers that I put in a fancy tin I found at a thrift shop. Because I have an advantage in information, I know that the cup of coffee I'm offering is probably only worth around $0.25. When clever bloggers analyze the trade a few years down the road, they'll say that I won.

This is a pretty common situation in baseball, as each team is offering players that their coaching staff has had a chance to work with and their scouts have had a chance to view day in, day out. Teams try to learn as much as possible about potential targets, but there's always going to be some imbalance of information, or some difference in how teams prefer to process that information. When that difference leads to one team valuing their player lower than a rival team does, there's a good potential for a trade.

This is where the Joel Peralta trade becomes most interesting. A little bit over a month ago, Andrew Friedman was in charge of baseball operations for the Rays. Matt Silverman was in charge of business operations. R.J. Harrison and his team did the scouting, and James Click and his team did the statistical analysis. Now, Friedman is the GM of the Dodgers while Silverman has taken over baseball operations for the Rays. The scouts and analysts are still in place.

The point I'm trying to make is that Friedman and Silverman have the same information regarding Peralta and Liberatore. There is no imbalance on this side of the trade (although there may be on the Dodgers' side, which is a little bit scary). If the driving factor was a difference in valuation, then that means that two former coworkers looked at the same data and arrived at different conclusions.

It's easy to see how that could happen with Peralta. On the one hand, Peralta is old, so we should all be on the lookout for his decline.

Last season, he gave up a ton of home runs, and allowed balls in play to go for hits far more often than he previously has in his career (.307 compared to .267). In addition, he really looked like he was struggling. His command seemed erratic, his fastball didn't challenge hitters, so he had to rely on his splitter and curve even more. There's a line of thought that says he had trouble getting batters to chase (spoiler: that doesn't show up in the stats).

On the other hand, Peralta struck out 27.9% of the batters he faced and walked only 5.7%. I've written that a lot in the past couple days but it bares repeating. That's a fantastic ratio, and one of the better ones of Peralta's career.

Defense Independent Pitching Statistics (DIPS) theory - first put forth by Voros McCracken - supposes that the differences in degree to which major league pitchers control what happens to a ball after the batter makes contact is very small. There's plenty of valid debate about the details, but DIPS theory on the whole is true. That means that home runs per fly ball counts and BABIP calculations are often misleading regarding pitching quality, and that the most sure way to predict future pitcher performance in a small sample size is by strikeouts and walks - the things the pitcher has more control over.

There's one very important modifier in my definition of DIPS for how the theory relates to Joel Peralta: the definition of "major league."

It's well known that DIPS metrics don't work well in the minor leagues. It was developed by studying major league pitchers, who are already a very select group that's been weeded out through the draft and the minor levels. They're all pitchers with a strong ability to limit hits and home runs. As Peralta ages, and as his fastball becomes a lamer and lamer duck, he may cease to resemble his "major league pitcher" peers while still retaining much of his skills. That could create a situation where while he can still posts good peripherals, his ERA should no longer be expected to approach them.

There's a chance that the Rays front office staff was split on this matter. One faction, including Andrew Friedman, believed in Peralta's peripherals. Another faction, including Matt Silverman, believed that they saw real decline. If that's the case, it's a very interesting one.

Either way, let's hope that Silverman is right.

(Editor's note: Ian did in fact leave his wallet this morning. He got to work by jumping the turnstile and I'm not sure the adrenalin has abated yet, so forgive all the crazy analogies.)