Tuesday, December 06, 2011

Hyperbolic discounting in the NBA economy

One reason the owners have the edge on the players in the NBA labor dispute is time horizon. I argued earlier that the owners can more easily take the long view.

Another way to say that is that the owners have lower discount rates.

But the problem is even worse than I thought. In an effort to minimize salary losses from the missed games, the players have agreed/insisted to cram 66 games into the rest of the time remaining (I think they are maybe adding a week to the schedule). This will cause teams to have to play 3 days in a row, and some teams to play 5 games in 6 days! This will cause bad ball, and most likely, injuries.

That is a HIGH discount rate the players are exhibiting.

Don't get me wrong, I'm happy to have basketball back in the OKC! I'm just saying that the players' attempt to hold out for future earnings was even more doomed than I had thought.

2 comments:

BR said...

NBA players also have EXTREME confidence bias. How many of them think they are susceptible to injury.

Anonymous said...

The NBA as viewed by the players: a job that can pull my family out of poverty.

The NBA as viewed by the owners: a hobby that at worst offers a write-off and may even make a little money.

Really, there was ever a chance the players would win?