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.
Similar content being viewed by others
Notes
The highlights of the NBA collective Bargaining agreement are described in http://www.nba.com/media/CBA101.pdf.
For more on win shares, see Basketball-reference (https://www.basketball-reference.com/about/ws.html).
Once a player has incurred their 6th foul during a game, they have “fouled-out” and are no longer able to play during that game.
We thank one of the referees to pointing out this issue.
References
Arkes H (1996) The pyschology of waste. J Behav Decis Making 9(3):213–224
Arkes H, Blumer C (1985) The psychology of sunk cost. Organ Behav Hum Decis Process 35(1):124–140
Bern DJ, Schmidt SL, Brook MB (2007) Does one simply need to score? Int J Sport Finance 2(4):190–205
Borland J, Lee L, Macdonald R (2011) Escalation effects and the player draft in the AFL. Labour Econ 18(3):371–380
Camerer C, Weber R (1999) The econometrics and behavioral economics of escalation of commitment: a re-examination of Staw and Hoang’s NBA data. J Econ Behav Organ 39(1):59–82
Deshpande SK, Jensen ST (2016) Estimating an NBA player’s impact on his team’s chance of winning. J Quant Anal Sports 12(2):51–72
Elhorst JP (2014) Spatial econometrics from cross-sectional data to spatial panels. Springer, New York
Eyster E (2002) Rationalizing the past: a taste for consistency. Job-market paper. Nuffield College, Oxford
Friedman D, Pommerenke K, Lukose R, Milam G, Huberman B (2007) Searching for the sunk cost fallacy. Exp Econ 10(1):79–104
García JAM, Caro LM (2011) A stakeholder assessment of basketball player evaluation metrics. J Hum Sport Exerc 6(1):153–183
Jin L, Scherbina A (2010) Inheriting losers. Rev Financ Stud 24(3):786–820
Kahn L (2000) The sports business as a labor market laboratory. J Econ Perspect 14(3):75–94
Keefer Q (2015) Performance feedback does not eliminate the sunk-cost fallacy: evidence from professional football. J Labor Res 36(4):409–426
Keefer Q (2017) Do sunk costs affect expert decision making? Evidence from the within-game usage of NFL running backs. Empir Econ. https://doi.org/10.1007/s00181-017-1399-y
Klein J, Moon Y, Picard R (2002) This computer responds to user frustration: theory, design and results. Interact Comput 14(2):119–140
Leeds D, Leeds M, Motomura A (2015) Are sunk costs irrelevant? Evidence from playing time in the National Basketball Association. Econ Inq 53(2):1305–1316
Page GL, Barney BJ, Mcguire AT (2013) Effect of position, usage rate, and per game minutes played on NBA player production curves. J Quant Anal Sports 9(4):337–345
Pinkse J, Slade ME, Brett C (2002) Spatial price competition: a semiparametric approach. Econometrica 70:1111–1153
Schoorman F (1988) Escalation bias in performance appraisals: an unintended consequence of supervisor participation in hiring decisions. J Appl Psychol 73(1):58–62
Spotrac.com. (2017). NBA Contracts. http://www.spotrac.com/nba/contracts/. Accessed 17 July 2017
Staw B (1976) Knee-deep in the big muddy: a study of escalating commitment to a chosen course of action. Organ Behav Hum Perform 16(1):27–44
Staw B (1981) The escalation of commitment to a course of action. Acad Manag Rev 6(4):577–587
Staw B, Hoang H (1995) Sunk costs in the NBA: why draft order affects playing time and survival in professional basketball. Adm Sci Q 40(3):474–494
Sun Y (2016) Functional-coefficient spatial autoregressive models with nonparametric spatial weights. J Econ 195:134–153
Whyte G (1986) Escalating commitment to a course of action: a Reinterpretation. Acad Manag Rev 11(2):311–321
Zuccolotto P, Manisera M, Sandri M (2017) Big data analytics for modeling scoring probability in basketball: the effect of shooting under high-pressure conditions. Int J Sports Sci Coach 13(4):569–589
Acknowledgements
We would like to thank two anonymous referees and the associated editor for their comments. Yiguo Sun would like to thank the financial support by the Social Science and Humanities Research Council of Canada Insightful Grant 435-2016-0340.
Author information
Authors and Affiliations
Corresponding author
Ethics declarations
Conflict of interest
The author declares that they have no conflict of interest.
Human and animal rights
This research does not contain any studies involving human participants or animals performed by any of the authors.
Additional information
Publisher's Note
Springer Nature remains neutral with regard to jurisdictional claims in published maps and institutional affiliations.
Rights and permissions
About this article
Cite this article
Hinton, A., Sun, Y. The sunk-cost fallacy in the National Basketball Association: evidence using player salary and playing time. Empir Econ 59, 1019–1036 (2020). https://doi.org/10.1007/s00181-019-01641-4
Received:
Accepted:
Published:
Issue Date:
DOI: https://doi.org/10.1007/s00181-019-01641-4