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Performance Feedback Does Not Eliminate the Sunk-Cost Fallacy: Evidence From Professional Football

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  • Quinn Keefer

Abstract

Empirical studies on the influence of sunk costs in high stakes decisions have come to mixed conclusions. As observational studies have primarily used professional sports labor markets, we analyze the effect of sunk costs, player compensation, on the labor utilization of defensive players in the National Football League (NFL). Our analysis has several advantages. First, we measure the direct impact of increased financial commitment. Second, we analyze the effect of sunk costs when firms have accurate and abundant performance feedback; therefore, our conclusions are not driven by uncertainty. Finally, we control for possible endogeneity by using the exogenous variation in compensation generated when players become eligible for free agency or change teams. Our results indicate sunk costs are significant determinants of player utilization. A 15 % increase in compensation has an equivalent effect on playing time as an increase of five to eleven solo tackles, one to two interceptions and two to five and a half sacks in the previous season for linebackers, defensive backs and defensive linemen respectively. Furthermore, the sunk-cost fallacy is persistent throughout the entire career of an average NFL player. Copyright Springer Science+Business Media New York 2015

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  • 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.
    • Handle: RePEc:spr:jlabre:v:36:y:2015:i:4:p:409-426
    DOI: 10.1007/s12122-015-9215-y
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    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. Michael A. Roach, 2018. "Testing Labor Market Efficiency Across Position Groups in the NFL," Journal of Sports Economics, , vol. 19(8), pages 1093-1121, December.
    3. 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.
    4. 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).
    5. Jeff Hobbs & Vivek Singh, 2022. "The endowment effect and the trading of draft picks in major professional U.S. sports," Economic Inquiry, Western Economic Association International, vol. 60(4), pages 1929-1942, October.
    6. Steven Salaga & Brian M. Mills & Scott Tainsky, 2020. "Employer-Assigned Workload and Human Capital Deterioration: Evidence From the National Football League," Journal of Sports Economics, , vol. 21(6), pages 628-659, August.
    7. Michael William Gmeiner, 2019. "History-Dependent Mixed Strategies: Evidence From Major League Baseball," Journal of Sports Economics, , vol. 20(3), pages 371-398, April.
    8. 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.
    9. Hackinger, Julian, 2019. "Ignoring millions of Euros: Transfer fees and sunk costs in professional football," Journal of Economic Psychology, Elsevier, vol. 75(PB).
    10. 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.

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    More about this item

    Keywords

    Sunk-cost fallacy; Performance feedback; Labor utilization; NFL; L20; J31; C36; Z22;
    All these keywords.

    JEL classification:

    • L20 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - General
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • C36 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Instrumental Variables (IV) Estimation
    • Z22 - Other Special Topics - - Sports Economics - - - Labor Issues

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