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

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  • Leeds, Daniel

    () (University of Michigan)

  • Leeds, Michael A.

    () (Temple University)

  • Motomura, Akira

    () (Stonehill College)

Abstract

The relevance of sunk costs in decision making is one of the major sources of disagreement between neoclassical economists and behavioral economists. We test the importance of sunk costs by examining the role of a player's draft position on his playing time in the National Basketball Association. Specifically, we ask whether players taken as "lottery picks" or in the first round of the draft are treated differently from otherwise identical players who are chosen later. We build on previous studies in three ways. First, we study a time period that had a stronger contrast between the financial commitment to first and second-round draft picks. Second, we use a better measure of playing time by accounting fully for the time a player loses to injury, suspension, or other exogenous factor. Finally and most importantly, we use a more sophisticated methodology – regression discontinuity – to test for whether teams treat lottery picks or first-round picks differently from later picks. Our results find little or no impact of draft round or lottery status on playing time. Hence, our findings strongly support the neoclassical outlook.

Suggested Citation

  • Leeds, Daniel & Leeds, Michael A. & Motomura, Akira, 2013. "Are Sunk Costs Irrelevant? Evidence from Playing Time in the National Basketball Association," IZA Discussion Papers 7801, Institute for the Study of Labor (IZA).
  • Handle: RePEc:iza:izadps:dp7801
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    Cited by:

    1. 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.

    More about this item

    Keywords

    sunk costs; behavioral economics; basketball; regression discontinuity;

    JEL classification:

    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles
    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
    • L83 - Industrial Organization - - Industry Studies: Services - - - Sports; Gambling; Restaurants; Recreation; Tourism

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