Wednesday, February 04, 2015

Sunk Costs in a Basketball Economy

Are Sunk Costs Irrelevant? Evidence from Playing Time in the National Basketball Association 

 Daniel Leeds, Michael Leeds & Akira Motomura 
Economic Inquiry, forthcoming 

Abstract: We use playing time in the National Basketball Association to investigate whether sunk costs affect decision making. Behavioral economics implies that teams favor players chosen in the lottery and first round of the draft because of the greater financial and psychic commitment to them. Neoclassical economics implies that only current performance matters. We build on previous work in two ways. First, we better capture potential playing time by accounting for time lost to injuries or suspension. Second, we use regression discontinuity to capture changes when a player's draft position crosses thresholds. We find that teams allocate no more time to highly drafted players. 

Nod to Kevin Lewis

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