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Rank-Based Groupings and Decision Making

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  • Quinn A. W. Keefer

Abstract

Rank-based groupings are uninformative signals of quality when the exact rank is known; therefore, they should be ignored in decision making. However, evidence is presented that rank-based groupings are used to determine the compensation of rookie players in the National Football League (NFL). The NFL draft, which largely determines rookie compensation, provides two signals of player quality, selection number, and round. However, the rounds are simply groupings based on selection number; thus, the rounds should not affect subsequent decisions. Sharp regression discontinuity design (RDD) estimates of discontinuities in rookie compensation at the round cutoffs are shown to be very large and robust. The first to second round discontinuity is −US$240,000 to −US$250,000, or 36% of the average salary of the first selection in the second round. The second to third round discontinuity is −US$60,000 to −US$70,000, or 17% of the average salary of the first selection in the third round. The results show rookie compensation, which comprises a large share of career earnings, is subject to heuristic thinking.

Suggested Citation

  • Quinn A. W. Keefer, 2016. "Rank-Based Groupings and Decision Making," Journal of Sports Economics, , vol. 17(7), pages 748-762, October.
    • Handle: RePEc:sae:jospec:v:17:y:2016:i:7:p:748-762
    DOI: 10.1177/1527002514541448
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    References listed on IDEAS

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    Cited by:

    1. Barry Reilly & Robert Witt, 2021. "The Effect of League Design on Spectator Attendance: A Regression Discontinuity Design Approach," Journal of Sports Economics, , vol. 22(5), pages 514-545, June.
    2. Quinn A. W. Keefer, 2019. "Do sunk costs affect expert decision making? Evidence from the within-game usage of NFL running backs," Empirical Economics, Springer, vol. 56(5), pages 1769-1796, May.
    3. Xavier Romão & Esmeralda Paupério, 2016. "A framework to assess quality and uncertainty in disaster loss data," Natural Hazards: Journal of the International Society for the Prevention and Mitigation of Natural Hazards, Springer;International Society for the Prevention and Mitigation of Natural Hazards, vol. 83(2), pages 1077-1102, September.
    4. Quinn Andrew Wesley Keefer, 2021. "Did the 2011 Change to NFL Rookie Compensation Alter How Sunk Costs Affect Utilization?," Journal of Sports Economics, , vol. 22(4), pages 387-411, May.
    5. Tobias Berger & Frank Daumann, 2021. "Anchoring bias in the evaluation of basketball players: A closer look at NBA draft decision‐making," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 42(5), pages 1248-1262, July.
    6. Quinn Keefer, 2015. "Performance Feedback Does Not Eliminate the Sunk-Cost Fallacy: Evidence From Professional Football," Journal of Labor Research, Springer, vol. 36(4), pages 409-426, December.
    7. Keefer, Quinn A.W., 2019. "Decision-maker beliefs and the sunk-cost fallacy: Major League Baseball’s final-offer salary arbitration and utilization," Journal of Economic Psychology, Elsevier, vol. 75(PB).
    8. Quinn A. W. Keefer, 2017. "The Sunk-Cost Fallacy in the National Football League," Journal of Sports Economics, , vol. 18(3), pages 282-297, April.
    9. Edyta Ropuszyńska-Surma & Magdalena Węglarz & Janusz Szwabiński, 2018. "Energy prosumers. Profiling the energy microgeneration market in Lower Silesia, Poland," Operations Research and Decisions, Wroclaw University of Science and Technology, Faculty of Management, vol. 28(1), pages 75-94.

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