IDEAS home Printed from https://ideas.repec.org/a/spr/empeco/v59y2020i2d10.1007_s00181-019-01641-4.html
   My bibliography  Save this article

The sunk-cost fallacy in the National Basketball Association: evidence using player salary and playing time

Author

Listed:
  • Alexander Hinton

    (University of Guelph)

  • Yiguo Sun

    (University of Guelph)

Abstract

We analyze the effect of player salary, a sunk cost, on player utilization in the National Basketball Association (NBA). According to economic theory, rational agents make decisions based on marginal expected benefits and costs, and non-recoverable costs should not influence decision-making. Therefore, NBA teams should be playing their most productive players, regardless of salary. Whether decision-makers in the real world uphold this normative theory and ignore sunk costs has been the topic of much empirical work. Previous similar studies have looked at whether NBA teams irrationally escalate commitment to their highest drafted players by giving them more playing time than their performance warranted, coming to mixed conclusions. We build upon these studies by using salary to measure the impact of financial commitment on playing time, by using a fixed-effect panel data model to control for unobserved individual heterogeneity which may have been biasing previous results, and by using a spatial econometric model for a robust check of playing time dependence among players within each team. Our results indicate that a small but significant sunk-cost effect is found.

Suggested Citation

  • Alexander Hinton & Yiguo Sun, 2020. "The sunk-cost fallacy in the National Basketball Association: evidence using player salary and playing time," Empirical Economics, Springer, vol. 59(2), pages 1019-1036, August.
    • Handle: RePEc:spr:empeco:v:59:y:2020:i:2:d:10.1007_s00181-019-01641-4
    DOI: 10.1007/s00181-019-01641-4
    as

    Download full text from publisher

    File URL: http://link.springer.com/10.1007/s00181-019-01641-4
    File Function: Abstract
    Download Restriction: Access to the full text of the articles in this series is restricted.
    File URL: https://libkey.io/10.1007/s00181-019-01641-4?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Camerer, Colin F. & Weber, Roberto A., 1999. "The econometrics and behavioral economics of escalation of commitment: a re-examination of Staw and Hoang's NBA data," Journal of Economic Behavior & Organization, Elsevier, vol. 39(1), pages 59-82, May.
    2. 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.
    3. Page Garritt L. & Barney Bradley J. & McGuire Aaron T., 2013. "Effect of position, usage rate, and per game minutes played on NBA player production curves," Journal of Quantitative Analysis in Sports, De Gruyter, vol. 9(4), pages 337-345, December.
    4. Daniel M. Leeds & Michael A. Leeds & Akira Motomura, 2015. "Are Sunk Costs Irrelevant? Evidence From Playing Time In The National Basketball Association," Economic Inquiry, Western Economic Association International, vol. 53(2), pages 1305-1316, April.
    5. Joris Pinkse & Margaret E. Slade & Craig Brett, 2002. "Spatial Price Competition: A Semiparametric Approach," Econometrica, Econometric Society, vol. 70(3), pages 1111-1153, May.
    6. Daniel Friedman & Kai Pommerenke & Rajan Lukose & Garrett Milam & Bernardo Huberman, 2007. "Searching for the sunk cost fallacy," Experimental Economics, Springer;Economic Science Association, vol. 10(1), pages 79-104, March.
    7. 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.
    8. Li Jin & Anna Scherbina, 2011. "Inheriting Losers," The Review of Financial Studies, Society for Financial Studies, vol. 24(3), pages 786-820.
    9. Borland, Jeff & Lee, Leng & Macdonald, Robert D., 2011. "Escalation effects and the player draft in the AFL," Labour Economics, Elsevier, vol. 18(3), pages 371-380, June.
    10. Sun, Yiguo, 2016. "Functional-coefficient spatial autoregressive models with nonparametric spatial weights," Journal of Econometrics, Elsevier, vol. 195(1), pages 134-153.
    11. Lawrence M. Kahn, 2000. "The Sports Business as a Labor Market Laboratory," Journal of Economic Perspectives, American Economic Association, vol. 14(3), pages 75-94, Summer.
    12. Arkes, Hal R. & Blumer, Catherine, 1985. "The psychology of sunk cost," Organizational Behavior and Human Decision Processes, Elsevier, vol. 35(1), pages 124-140, February.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Quinn Keefer, 2021. "Sunk costs in the NBA: the salary cap and free agents," Empirical Economics, Springer, vol. 61(6), pages 3445-3478, December.
    2. 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.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Hackinger, Julian, 2019. "Ignoring millions of Euros: Transfer fees and sunk costs in professional football," Journal of Economic Psychology, Elsevier, vol. 75(PB).
    2. Quinn Keefer, 2021. "Sunk costs in the NBA: the salary cap and free agents," Empirical Economics, Springer, vol. 61(6), pages 3445-3478, December.
    3. 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.
    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. 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).
    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. Robalo, Pedro & Sayag, Rei, 2018. "Paying is believing: The effect of costly information on Bayesian updating," Journal of Economic Behavior & Organization, Elsevier, vol. 156(C), pages 114-125.
    8. Pedro Robalo & Rei S. Sayag, 2012. "Information at a Cost: A Lab Experiment," Tinbergen Institute Discussion Papers 12-143/VII, Tinbergen Institute.
    9. Borland, Jeff & Lee, Leng & Macdonald, Robert D., 2011. "Escalation effects and the player draft in the AFL," Labour Economics, Elsevier, vol. 18(3), pages 371-380, June.
    10. Teck-Hua Ho & I. P. L. Png & Sadat Reza, 2018. "Sunk Cost Fallacy in Driving the World’s Costliest Cars," Management Science, INFORMS, vol. 64(4), pages 1761-1778, April.
    11. 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.
    12. R. Preston Mcafee & Hugo M. Mialon & Sue H. Mialon, 2010. "Do Sunk Costs Matter?," Economic Inquiry, Western Economic Association International, vol. 48(2), pages 323-336, April.
    13. David J. Berri & Christian Deutscher & Arturo Galletti, 2015. "Born in the USA: National Origin Effects on Time Allocation in US and Spanish Professional Basketball," National Institute Economic Review, National Institute of Economic and Social Research, vol. 232(1), pages 41-50, May.
    14. Ronayne, David & Sgroi, Daniel & Tuckwell, Anthony, 2021. "Evaluating the sunk cost effect," Journal of Economic Behavior & Organization, Elsevier, vol. 186(C), pages 318-327.
    15. Florian Heine & Martin Sefton, 2018. "To Tender or Not to Tender? Deliberate and Exogenous Sunk Costs in a Public Good Game," Games, MDPI, vol. 9(3), pages 1-28, June.
    16. Gneezy, Uri & Nelidov, Vadim & Offerman, Theo & van de Ven, Jeroen, 2023. "When opportunities backfire: Alternatives reduce perseverance and success in task completion," Journal of Economic Behavior & Organization, Elsevier, vol. 208(C), pages 304-324.
    17. Duxbury, Darren, 2012. "Sunk costs and sunk benefits: A re-examination of re-investment decisions," The British Accounting Review, Elsevier, vol. 44(3), pages 144-156.
    18. Nava Ashraf & James Berry & Jesse M. Shapiro, 2010. "Can Higher Prices Stimulate Product Use? Evidence from a Field Experiment in Zambia," American Economic Review, American Economic Association, vol. 100(5), pages 2383-2413, December.
    19. Daniel Friedman & Kai Pommerenke & Rajan Lukose & Garrett Milam & Bernardo Huberman, 2007. "Searching for the sunk cost fallacy," Experimental Economics, Springer;Economic Science Association, vol. 10(1), pages 79-104, March.
    20. Berg, Joyce E. & Dickhaut, John W. & Kanodia, Chandra, 2009. "The role of information asymmetry in escalation phenomena: Empirical evidence," Journal of Economic Behavior & Organization, Elsevier, vol. 69(2), pages 135-147, February.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:spr:empeco:v:59:y:2020:i:2:d:10.1007_s00181-019-01641-4. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.